Actual economic effects...

[Spinflight]

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. :)

I want there to be delay and so I would prefer waiting till September. This is for one reason. I want as many post-Referendum UK economic indicators as possible to be available by the day the Article 50 button is pushed.

I'm not expecting this to switch the outcome to Remain but I do want the person pushing the button to have a clearer idea what they are committing the UK to. I want them to be asked by the media before they press the button what their plan is in the light of the prevailing economic conditions.

But that's the problem. Right now the economy is responding to the political vacuum not the vote result to leave the EU. To wait just weakens the UK further leaving us weak no matter what the decision.

Maybe, maybe not, neither of us knows how things will go and which factors will increase uncertainty.

Since accelerating the election result guarantees nothing in terms of providing certainty my choice would be getting as informed a decision in activating Article 50 as possible.

Anyway, in the interests of balance:

www.southwales-eveningpost.co.uk/tata-steel-withdraws-port-talbot-and-trostre-plants-from-sale-but-future-still-uncertain/story-29491830-detail/story.html

I agree supermum.

Watching the pound fall to near parity with dollar just to prove a point feels like self harm - and it won't prove anything. People will argue a) it was due to leadership vacuum rather than Brexit specifically or b) we were due a downturn anyway because of bankers/EU/lizards.

Theresa May has deferred Article 50 until the end of the year. If Leadsom gets in, I assume there will have to be an election because the Tories weren't elected with a mandate for leave.

If we're going to have an election we need to get on with it. And it's all the more important for Leavers to have information about realistic Brexit models asap.

my choice getting as informed a decision in activating Article 50 as possible

I agree with you on that. But unless someone steps up and gets the information out to the public, it's not going to happen.

IMF cut growth forecast for the Eurozone.

Prior to the EU referendum vote, the eurozone was forecast to grow 1.7% this year and next, now cut to 1.6% in 2016 and 1.4% next year.
Mahmood Pradhan, the deputy director of the IMF’s European department, told the Press Association it was “very early thinking and assessment... it’s very, very early days to have any strong sense of confidence.”
This is the full statement:

^The markdowns for the euro area reflect likely weaker investor confidence on account of heightened uncertainty, greater financial market volatility, and lower import demand from the UK.
Given the euro area’s substantial weight in world trade, this slowdown would have spillovers to many other economies, including emerging markets, but the impact is expected to be limited.
Looking ahead, the risks to the outlook remain firmly on the downside and are mainly political. Uncertainty will persist as long as the UK’s new status vis-a-vis the EU is not clear.^

But that's the problem. Right now the economy is responding to the political vacuum not the vote result to leave the EU. To wait just weakens the UK further leaving us weak no matter what the decision.

I don't agree with this.

The fall in the FTSE 250 and in sterling reflects the economic uncertainty resulting from our current predicament, but the markets are certainty not, yet, fully pricing in what might happen if the UK left the EU precipitously, on WTO terms.

The markets reflect what we know happens during periods of uncertainty: investors delay committing to new capital investment, businesses implement hiring freezes, consumers delay large purchases. Although nothing has yet changed in terms of our relationship with the EU, something is going to (we don't know what), so these are rational responses from the point of view of individual investors, businesses and consumers all of whom are individually trying to mitigate risk in a situation where the future is unusually uncertain. The problem is that these decisions have a knock-on effect on the real economy, because money that would be spent in the UK economy isn't being spent. This is what the markets are reacting to at the moment, not to Brexit itself.

I don't believe that the economic impact of a rapid exit is priced in. Any hasty decision to trigger A50 would be calamitous for the markets, because it would increase uncertainty and risk. It is pretty well recognised now, by informed people anyway (and I think that in this respects most market participants are quite well informed) that two years will be wholly insufficient to negotiate a favourable deal with the EU. Thus, a hasty departure massively increases the risk that the UK leaves the EU with no deal at all.

misti when I say wait I am talking about waiting to elect a new PM not article 50. We need a plan and a couple of back up plans to that master plan before we embark on leaving the EU.

To get a plan together we need parliament to elect a new leader and start having some debates regarding the tough decisions that need to be made.

Nothing should be done regarding the EU relationship until after the U.S. elections. If Trump gets in the neigotiation will be very different to neigotiating with HC administration. The US, China, India and Germany should be our key markets to reach agreements on. We also have to decide what to do regarding trade with Russia.

The UK can't negotiate a trade deal with Germany. It's this sort of misconception which makes it hard to have a sensible conversation about brexit.

A trade deal with any major trade partner - the US, China - will take many years to negotiate and we will be the weaker party in any negotiation.

I don't think a Trump presidency would make things easier for the UK at all: Trump has already committed to tearing up existing trade deals, which if it happens would draw attention and resources away from negotiating new deals.

Place marking

This is what the markets are reacting to at the moment, not to Brexit itself

I don't agree with that. I think markets are reacting to 1) the shock of the Brexit vote itself (as opposed to the final outcome) 2) the power vacuum following the vote 3) the uncertainty. I don't personally think they can be separated.

'Hasty decision to trigger Article 50' hasn't been mentioned. For the moment at least, that's not the primary concern. If May gets in we've got until Christmas. If Leadsom gets in we'll have to address it, but first I think we would have to have an election. While there are conflicting views on whether the PM has the prerogative to action Art 50 without the approval of Parliament, in practice I think it would be almost impossible, and anyway, Parliament would need to vote on rescinding the 1972 Act.

No trade deals with UK until Brexit is complete, says Norway

cote The agreements can't be made officially until the UK leaves the EU. Until then everything is via the EU agreements.

misti

I don't agree that trade agreements will take years with major trading partners. Our major trading partners outside of the EU had pre existing agreements which will be the template to work from if the terms are not as agreeable as the terms with the EU, in which case that is the starting point for negotiations.

Also, when I say the UK need to neigotiate with Germany what I should have said is that the UK need to look to influence Germany to steer the EU trade agreement with the UK. We are a country of 70 million people, we have high per capita income therefore we are an attractive market for many EU countries such as Germany, Denmark, Sweden, France and Benelux.

It's taken the Canadians 7 years to get their world trade deal, and they don't have the complex ties with the EU, and it's still not finalised.

Canada is a country with about 33 million people and little in the way of assets because they have sold them all off. If you want to neigotiate a trade agreement you can do.

Manon I don't disagree with you on what are markets responding too, it's a question of nuance.

They are reacting to the brexit vote (of course) but they can't be reacting to Brexit itself because as yet we don't even know what Brexit means. From a manufacturer's point of view, for example, the vote might mean deferring a decision on investment in new capacity. But if it turns out that brexit actually means WTO terms, rather than EEA, then it could and probably would mean that some existing capacity gets moved to the EU, in those industries which would be the most seriously disadvantaged by WTO terms. At the moment I don't believe that this is priced in.

The timescales that the candidates are talking about are wholly unrealistic. There's no way that the UK will be in a position to safely trigger A50 at Christmas. I agree that the political vacuum needs to be filled; however, it won't end the incertainty (and if Leadsom gets in, then the poor judgement she has displayed in recent days could result in things getting worse).

I don't agree that trade agreements will take years with major trading partners.

What do you base this assertion on? Can you give an example of a major trade deal that has been concluded rapidly?

Our major trading partners outside of the EU had pre existing agreements which will be the template to work from if the terms are not as agreeable as the terms with the EU, in which case that is the starting point for negotiations.

I don't understand what you're saying here. Can you give an example?

A trade deal with any major trade partner - the US, China - will take many years to negotiate and we will be the weaker party in any negotiation.

It's comments like this which make it hard to have a sensible discussion.

It's comments like this which make it hard to have a sensible discussion.

Why? You have to have some evidence to assert that it will be easy and quick to conclude trade deals. Can you give examples of deals which have been concluded in two years? Because it's very easy to find examples of deals which have taken 5 years +.

The markets are reacting to uncertainty. They always do. However it is the making of policy around market reaction that is dangerous. Markets are especially ephemeral these days and frequently react to traders' own insecurities, which are not always aligned to long term economic interest.

As far as I know WTO terms mean 7.5%. Am I wrong? Even under this worst case scenario, U.K. Wage costs have dropped by more than this (in Euro terms) so would not be a huge impediment to us. However it would add about 15-20% (devaluation plus duty£ to European goods sold in the uk. Will the Europeans (especially the Germans) want this?

larrygrylls I think the markets are even more concerned about the Eurozone. It was hidden news this week but the Italian banks are on the point of collapse. Of course, everyone will be shafted in the Eurozone goes but there are lots of factors around just now, as you say. The markets are also responding to growing concerns about China...

Rooner,

It is summer. Senior traders are at Wimblrdon etc. They will be thin. Us markets are rallying, so clearly (right now) are fairly sanguine.

There is still a scary European banking crisis. The Buffet quote is most apt here: 'it is only when the tide goes out that you know who is swimming without trunks on' (or something v close).

The U.K. May become a safe haven if this banking crisis comes to the fore again.

I don't think it will be quick and easy. I think it is complex and a massive challenge.

It is the bit about the UK being the weaker party in any negotiation. With the right strategy in place the UK makes sure it is in the interests of other partners to trade with us. Referring to the UK as 'weak' is just unsubstantiated claptrap based on a fictitious worst case scenario.