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Actual economic effects...

(1000 Posts)
Spinflight Sat 25-Jun-16 21:59:57

FTSE closed on Wednesday at 6138. Closed on Friday at 6138.

Long term borrowing rates have come down as brexit appeared more likely, 10yr ones from 2% down to 1.09% post brexit. Similarly all the European long term borrowing rates rose sharply. Lesson? We are a less risky and more credit worthy outside the EU than in.

One ratings agency did drop our credit worthiness, though oddly the last time they did was out of fear of Eurozone contagion. Seems completely at odds with the long term borrowing rates, which matter quite a great deal given our debts.

The pound dropped, quite significantly. It appears however that there was some 'unusual' activity in the market which forced it down whenever the Leave campaign polled well. To the extent of trying to sell it when there were no buyers.

Some people lost a great deal of money, probably dwarfing the millions contributed to the remain campaign, lets hope it was Goldman Sachs and JP Morgan. smile

STIDW Sat 25-Jun-16 23:28:30

Mark Carney managed to reassure & stabilise the markets yesterday. After the fall in the Dow Jones yesterday remains to be seen what will happen
on Monday & the medium term. Because of uncertainty there is unlikely to be new Foreign Direct Investment & that will affect new & existing jobs .

Spinflight Sun 26-Jun-16 03:04:54

Slightly less likely to see foreign direct investment, considerably more likely to see domestic investment. Especially if the pound settles lower overall. This helps exporters and the balance of payments, which is currently a mess.

The reduction in long term borrowing rates has a very significant effect given the huge size of our debt though.

For instance in 2015 we paid almost £45 billion in interest alone. Post brexit and reduced long term borrowing rates they can roll that debt over and potentially save £30 billion a year.

In case you didn't notice the large increases in eurozone long term borrowing rates will largely be financed out of London. Means bigger risk but bigger profits. smile

By propping up the European economy we were effectively doing the city of London out of money!

Spinflight Sun 26-Jun-16 16:32:18

Also merely the £19 billion a year contribution affects our balance of payments as it is paid in euros.

Not massive but not insignificant either.

STIDW Sun 26-Jun-16 17:13:18

Slightly less likely to see foreign direct investment, considerably more likely to see domestic investment.

Perhaps in the long term. In the meantime Brexit has no exit stategy approved by parliament. Businesses don't like uncertainty. There is a "rabbit-in-the-headlights phenomenon" where businesses don't want to make new decisions, or new investments, because they are uncertain about the future.

The immediate effect is a lowering of investment which we can expect as of next week, a lowering of hiring & immediate slowdown of growth. A recession is on the cards anyway but Brexit makes it more difficult to avert & leaving the EU has the potential to make the recession worse than it would have been otherwise. We shall see.

Sajid Javid has convened a meeting of senior figures on Tuesday to reassure British businesses & I suspect George Osbourne hasn't been seen because he is doing his job & trying to mitigate the effects.

noblegiraffe Sun 26-Jun-16 17:17:38

China has just announced that Brexit will throw a shadow over the global economy and have long term consequences.

Spinflight Sun 26-Jun-16 17:18:54

This thread is about actual economic effects...

Yours is mere speculation.

PattyPenguin Sun 26-Jun-16 17:21:02

China has a humungous pile of debt and its economy is in trouble.

Am I the only one to think that Brexit makes a jolly good scapegoat? And to wonder who else needs a scapegoat at present? (Please form an orderly queue.)

STIDW Sun 26-Jun-16 17:31:56

China has a humungous pile of debt and its economy is in trouble.

Global economy isn't great at the moment & the worry is once the economy in one country slows down it will have a domino effect. That's why the global markets are jittery.

STIDW Sun 26-Jun-16 17:33:17

Yours is mere speculation.

Time will tell

Spinflight Sun 26-Jun-16 18:44:47

Interesting that Canada has already declared an interest in a free trade treaty.

Interesting because Canada is part of NAFTA, the North American free trade area. Hence if we had free trade with Canada we would effectively have free trade with all of NAFTA, American companies would merely need an office there.

Sounds like we could have bigger and better access to a far wealthier area than the EU the moment we leave.

freetrampolineforall Sun 26-Jun-16 18:55:58

Mark Carney said we've got emergency cash to pump into the market. That's why it didn't crash and burn. Not because Brexit is a nontoxic event.

noblegiraffe Sun 26-Jun-16 19:00:08

Spin you're suggesting that American companies will open offices in
Canada just so that they can trade with the UK under whatever trade deal Canada negotiates, rather than under whatever awesome trade deal America will be able to negotiate for itself with the UK?

Spinflight Sun 26-Jun-16 19:10:59

I'd imagine that Canada's wishes would be taken into regard amongst wider negotiations anyway.

STIDW Mon 27-Jun-16 23:36:45

"As we sit here I believe the flow of foreign investment to the U.K. has dried up as businesses wait to see what happens” Philip Hammond 27/6/16

At close today;
FTSE 100 5982
FTSE 250 14968 -1220 (£140bn or -7%)
GPD/USD 1.32 (30 yr low)

UK GIlt 10 yr Gilt yield falls below 1% for the first time ever

S&P & Fitch downgrade UK credit rating

George Osbourn: No immediate emergency - UK economy in a position of strength

Institute of Directors: survey of 1,000 members found that a quarter planned to freeze recruitment, almost a third would keep hiring at the same pace & 5% plan to cut jobs.

China: companies may wait & see before investing in UK

Mervyn King: Doom & gloom widely exaggerated

GraceGrape Mon 27-Jun-16 23:43:45

All three credit ratings agencies have now downgraded us. We've had our AAA rating from S&P since the 1970s - it even managed to survive the financial crisis. Now they have downgraded it not one, but two notches.

Flumpnugget Mon 27-Jun-16 23:48:13

Thank you for starting this useful thread- evidence & fact is what's needed right now.

Roonerspism Mon 27-Jun-16 23:51:39

I did wonder how Osborne could play this.

He could hardly turn around this morning and say all would be OK. But he needed to reassure the markets. Don't fancy giving that message much.

The downgrading was inevitable.

We need to take a longer term view here.

STIDW Tue 28-Jun-16 22:35:45

Day 5

FTSE 100 6,140.39 +158.19
FTSE 250 15,503.06 +535.20
GBP/USD 1.33

So bit better but still a long way for FTSE250 & GBP to recoup losses.

BoE injected funds worth £3.1bn into UK banks

Spreadex analyst Connor Campbell:Today's rebound is likely just investors searching for the lows.

George Osborne: UK in a prolonged period of economic adjusting to life outside the EU & it will not be as economically rosy as life inside the EU. We must try and keep financial services passport.

BoE injected funds worth £3.1bn into UK banks

Just Retirement & Liverpool Victoria: announce annuity rates cuts of 2% & 3% respectively to the amount of pension they will pay out to the newly retired

Ryanair: may shift its focus away from the UK onto the EU

Siemens: freezes new UK investment

Spinflight Wed 29-Jun-16 06:15:53

I can't say I understand the ratings agencies downgrading us. Seems the markets are saying one thing with all time historical lows for government borrowing and they are saying another.

I could make a good case for an old fashioned labour government to invest money into industries and infrastructure to rebalance our economy towards brexit in the current circumstances.

Roonerspism Wed 29-Jun-16 06:21:04

I think the ratings agencies were moving as a kind of boys in the city club response.

"We told them it will be bad". "Right - let's just downgrade now then and have a beer"

Spinflight Wed 29-Jun-16 21:11:20

Retail sales up, average earnings up, employment up and continued economic growth.

Also the economies which have currently approached us to negotiate trade deals (Canada, India, Australia, New Zealand, South Korea, Mexico) total about $10 trillions gdp worth of growing markets.

The EU was worth about $15 trillions however is not growing and represents far fewer people. India alone of course has a massively larger population than the entire EU. smile

STIDW Wed 29-Jun-16 21:19:14

Day 6

FTSE 100 6,360.06 +219.67
FTSE 250 16,002.90+499.84
GBP/USD 1.35

So the FTSE100 has more than recouped it’s losses since Friday. However the FTSE 250 is still down 7.6% & GBP has fallen from around from $1.4 before the referendum.

Vodafone: reconsidering keeping its globalHQ in Londonif it will no longer have access to the single market.

Encocam: enquiring about grants to open a design center in the EU because Brexit could hinder the ability to hire engineers, designers & other skilled workers from abroad

Cicero Group executive chairman Iain Anderson: in talks with the SNP on making Edinburgh a financial services powerhouse

Richard Branson: his business has lost a third of it’s value & the start of a project employing 3k will not now go ahead (yesterday)

PattyPenguin Wed 29-Jun-16 21:22:25

Well, the retail sales, earnings, employment and economic growth figures are historical i.e. they report on the period before the referendum.

Meanwhile, "Economists have taken the knife to their UK growth forecasts, according to Consensus Economics.

They now expect economic growth to be 0.4% next year (roughly what it is now) rather than the 2.1% originally forecast, according to Consensus, which polls hundreds of economists.

Inflation is predicted to rise to 2.2%, compared with original predictions of 1.6%."

Consensus Economics website is here

Mind you, they're experts, so apparently what do they know.

And I look forward to seeing the inking of signatures on the above mentioned trade deals.

Spinflight Wed 29-Jun-16 21:55:26

This thread is for actual effects patty. A ratings agency dropping a credit rating is an actual effect, even if it is confusing given the markets reaction.

Economists forecasts and possible business moves are not actual effects until they happen. As are possible moves of companies into the UK due to brexit.

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