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Effects of Brexit #finance

I usually write about finance and investing on a Friday but for obvious reasons, I decided to wait another day. I don’t think we will even begin to understand the effects of Brexit until next week and it could take years.

effects of Brexit

The stock market

The stock market got trashed again, but the carnage wasn’t quite as bad as I expected. The worst hit firms were the banks and house builders. Small pharmaceuticals did badly and new drugs will take longer to come to the market but big pharma actually saw share prices rise. They get much of their revenue from overseas and so the value of the pound getting trashed actually benefited them. Some exporters like Rolls Royce might benefit too. The carnage slashed share prices with the banks getting 20% or more cut from their market capitalisation with Lloyd’s Banking Group losing about 10 billion. That could have been much worse, the banking reforms seem to have worked and prevented a meltdown.

The FTSE 250

While the FTSE 100 crashed 3%, the FTSE 250 did even worse losing a whopping 7% mainly because house builders got hit for up to 30%. Overall the FTSE all share was down 3.82% which wasn’t as bad as the 2007 credit crunch.

Contagion

The carnage wasn’t confined to London, in fact, it started in Asia before London even opened and spread around the world. Not only has Britain’s credit rating taken a battering but confidence in the world economic system has taken a hit. The world economy was already in a weak state and we now have to see how quickly it can recover and what the nasty medicine might be. It will be nasty medicine. The effects of Brexit will spread wide.

George Osborne

George Osborne promised more austerity and tax rises if there was a Brexit. Will he pull those benefits cuts back out of the waste bin? I don’t think the Lords could defy him a second time. A recession seems likely but at least the Bank of England can take action independently of the EU. It can, can’t it?

Quantitative Easing

QE might be needed again and if it was used to solve the housing crisis that could be a genuine boost to the economy  but I believe that would be contrary to the Lisbon Treaty. We might be out of Europe but still bound by agreements. The effects of Brexit have only just begun.

Conclusion

It is a mess and David Cameron should never have called a referendum. It is too late for recriminations, we now have to try to restore confidence in the UK and stop the union breaking apart.

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