The narrowly won vote to leave the EU after 46 years of membership was mainly motivated by concerns about unrestricted immigration of EU citizens into the UK, the relative lack of sovereignty over decision-making that EU membership entailed and the ongoing financial cost of being a member. The broader economic consequences of this change were perhaps less well understood. Most economists agree that the economic impact is likely to be negative, with GDP falling due to the less advantageous terms on which the UK will be able to trade with its nearest neighbours. The UK's terms of trade will also likely deteriorate (as they have already with the fall in sterling since 2016), meaning imported goods and services will tend to be more expensive. There may also be long-term costs once the UK becomes relatively less open to the flow of people and ideas that can stimulate growth.
So far, there is some evidence that the uncertainty surrounding Brexit has caused firms and households to defer spending plans until the situation is clarified, while overall UK growth seems to have fallen behind G7 peers over the last two years. But looking forward, the seriousness of Brexit's impact on the UK economy will depend on the terms of the eventual deal between the UK and the EU. This is what the negotiations have been about since the government triggered Article 50 in March 2017.
Almost certainly, the worst outcome all round would be for the UK to leave the EU without any deal at all, though we believe this is relatively unlikely. This might occur if the current lack of agreement in Parliament on how to proceed continues. No Deal would be the "hardest" type of Brexit on offer, involving the UK moving on to World Trade Organisation trading arrangements with higher tariffs and more restrictive movements on goods across borders, as well as the lapsing of other UK-EU arrangements.
We believe it is more likely that some kind of deal with the EU will be reached, probably involving a type of free trade arrangement with minimal tariffs on trade in goods with the EU but no harmonisation of standards as occurs in the European Single Market. This would probably be costly for the UK economy and still constitute a moderately "hard" Brexit. Less costly would be some variant of a so-called "soft" Brexit. This could be achieved by staying in the customs union with the EU, though this prevents signing trade treaties with non-EU countries, or joining some variant of the European Economic Area (sometimes called the Norway option). Either of these options would be much less costly in terms of economic impact but neither would realise many of the possible benefits of leaving the EU, since the UK would not be able to curb EU immigration and would need to continue to pay into the EU. For now, so long as No Deal is avoided, as we expect, no new trading arrangements would come into force until after they had been agreed during a transition period lasting until the end of 2020.
The reality is, however, that no political consensus has been reached within the UK nor between the UK and EU on what rules should apply. One particular stumbling block has proved to be the treatment of the border between Northern Ireland and the Republic of Ireland, which post-Brexit will form a land border between the UK and the EU. Indeed, the inability to reach agreement has increased the possibility that the 29 March deadline will be extended and even that a new referendum might be called which could potentially reverse the original decision and lead to the UK staying in the EU after all.
So how should investors respond to all of this Brexit uncertainty? So far, the exchange rate has borne the brunt, falling around 10% since the referendum; UK equities have probably been slightly weaker than would have been expected, while UK fixed income has probably been more robust as the Bank of England policymakers have held off raising interest rates. If No Deal is taken off the table, it seems likely that sterling assets would rally slightly, even more so if Brexit were reversed altogether. But the threat of a hard Brexit or even No Deal still means there are downside risks to UK assets. In the absence of a crystal ball, the case for a well-balanced globally diversified portfolio of stocks and bonds is as strong today as ever. Far better to watch the news as an interested citizen than as a trigger-happy investor!
Chief Economist, Vanguard Europe
25 February 2019
For more than 20 years, Sam has been a financial planner helping individuals and families achieve their financial planning goals, by providing advice on Investment Planning; Insurance Planning; Tax Planning; Retirement Planning; and Estate Planning. Working with a network of highly skilled professionals in Sydney he is dedicated to providing high-quality advice and integrated wealth management solutions that simplify and enhance the quality of his clients' lives.
Sam established his own firm in 1997 and has overseen its steady development and growth. Attention to detail, good listening skills and great empathy are symbols of his appreciation by his clients. He has built long-term relationships with his growing client base and aims to provide excellent customer service.
Sam began his financial planning career in 1993 after completing a Bachelor of Science degree in 1991. Since this time he has accumulated many professional qualifications such as:
Sam has volunteered with the Cancer Council of NSW and can be seen almost every year volunteering or participating in the 7 bridges walk.
Away from the business, he enjoys spending weekends with his son. He is also a football (soccer) tragic and is a massive Chelsea FC fan.
Having worked for national financial planning companies in the past, George has extensive experience in the provision of advice in risk insurance, investments and retirement planning and is focused on forming long-term relationships with his clients.
George has been awarded a Masters of Commerce (Financial Planning) and a Bachelor of Commerce through University of Western Sydney as well as having the Diploma of Financial Services (Financial Planning).
Jane Lim is a friendly character with a bubbly personality. She has the unique ability of making complex information sound simple and easy to digest.
Jane entered the financial services industry in 2006, and worked with big blue-chip financial companies such as Count Financial Limited and AMP Financial Planning Pty Ltd.
She holds a Master's degree in Applied Finance through Macquarie University, and she is a member of the Million Dollar Round Table.
Being a self-confessed "tennis nut", Jane spends many weeknights in the tennis court, and is a frequent member of Sydney's Eastern Suburbs Tennis Competition.
Being a highly motivated professional, Jane is always eager to help her clients on a wide range of financial planning needs.
Paul has been a financial planner for over 15 years helping individuals and families successfully achieve their financial planning goals. He is very focused on building successful long-term harmonious relationships with his clients.
He provides a holistic approach on various aspects of financial advice encompassing areas such as Investment Planning; Insurance Planning; Tax Planning; Retirement Planning and has extensive experience and knowledge in these fields.
Paul's professional qualifications are:
Away from his professional life, he enjoys spending his time with his family doing various activities such as coaching his son and taking him to games. He is a very avid sports fan and a cricket enthusiast.
Client Services Manager
Christian joined Capitalwise as Client Services Manager, with backgrounds in both customer service and administration.
Christian is passionate in providing excellent customer service by being attentive to client’s need as well as being able to circumnavigate challenges.
He holds a Master's degree in Commerce specialising in Marketing through the University of New South Wales.
Volunteering is one of his delights in life, where he had spent time being involved with the Centre for Volunteering, St Vincent de Paul's Society, and Sculpture by the Sea in a variety of positions.
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