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. :)

gratesnakes I highlighted that strength in my post but also that Brexit is a risk to that preeminence. The boffins and elite universities regard Brexit as a major threat. Over 400 incidents already reported to Jo Johnson the universities minister of either top scientists not coming here or UK teams being excluded from collaborative projects because of the perceived xenophobia and uncertainty over funding and future rights to live and work here. www.bbc.co.uk/news/science-environment-36898228

Also worth following this www.facebook.com/scientistsforeu/?ref=ts&fref=ts

Young scientists really are now talking about moving overseas as a matter of course to be able to access the best opportunities to live and work in much the same way young doctors and nurses do as a result of the deterioration in working conditions in the NHS.

Our elite universities are also extremely worried about the possibility of losing the income derived from EU students, and where they will make that up. I can't for the life of me understand why over 150000 overseas students have been included in the immigration figures by TM, and therefore regarded as a target to be limited rather than customers who help sustain an important economic asset (but then you could say that for a lot of immigrants ). It all sends out negative signals to potential students from all over the world and inhibits the ability of our universities to compete globally russellgroup.ac.uk/news/eu-referendum-result/

What can go wrong is we lose the EU passport for financial services, the highly skilled scientists and techies, the benefits of EU collaboration

And also basic logistics of UK manufacturing.

Car manufacturing, for example, needs complete access to the single market & free movement, because only 20% of production is now for the UK market. It currently has 30,000 vacancies and needs to be able to hire skilled workers from Europe.

The much touted EEA/EFTA model, is not part of the customs union. So exporters and foreign businesses exporting to them have to undergo customs procedures - including declarations, rules of origin for all goods exports & VAT payments.

The rules of origin may be a headache for the car industry in particular as around 60% of the components for cars assembled here are imported.

In addition, inexperience of EEA rules across the EU mean that in practice Norwegian companies, for example, report customs issues at borders causing delays and affecting profits.

A recent Swedish government report that showed businesses find trade with Norway unwieldy despite the fact that it should be straightforward.

in practice Norwegian companies, for example, report customs issues at borders causing delays and affecting profits.

Yep I've experienced this as a customer trying to buy from a Norwegian online company.

The Lloyds issue is a moot point.

In their restructuring to deal with the financial crisis fallout plus the effect of digital revolution, they lost 25% global headcount 2008-2013. A further 9,000 job losses were planned in 2014. The 200 branch closures announced today come on top of 200 branch closures already underway. The 3,000 new job losses on top of that.

The latest plans are no doubt partly due to the shift to online banking, but the bank has also cited the likelihood of interest rates staying low post-Brexit. Equally, Lloyds is particularly tied into the UK economy with all its current uncertainty. Lloyds and RBS are the most vulnerable to losses in the commercial property market - Lloyds has £18.1 billion worth of commercial property loans. In addition, the downturn will inevitably affect the capacity to generate excess capital.

So I'd say it's 6 of one and half a dozen of the other.

Regarding customs union issues, I just read this article on the FT website:

Britain’s premature bid for global trade deals

For those without a subscription:

"Membership of the EU’s customs union — that is, having a common external tariff applied to imports from the rest of the world — is a separate issue to membership of its single market. Norway, for example, is a member of the single market but not of the customs union, enabling it to protect some of its producers with higher tariffs than allowed in the EU. If it wants, Norway can also sign trade deals with third-country governments permitting imports at lower tariffs.

"However, in order to prevent countries such as Norway becoming a backdoor into the EU market, Oslo is obliged to apply complex “rules of origin” to its exports, ensuring that they have substantially been made in Norway rather than imported from, say, China and re-exported to the EU. This, plus the need to comply with customs paperwork from which EU countries are exempt, imposes considerable costs on Norwegian companies selling goods to the bloc.

"For Norway, whose exports are dominated by primary products like crude oil, this may not pose too great a hardship. For the UK, whose goods exports are generally more complex and involve the use of imported inputs, they could prove a serious handicap. On the other hand, if the UK stays inside the EU customs union and is forced to apply the same tariffs as the EU, that will in effect preclude it signing any meaningful trade deals involving goods trade with any other economy".

I have only found out about the EEA vs. EU customs union in the last few days. This is slightly helpful in explaining the practical impact medium.com/@SamuelMarcLowe/no-where-is-it-really-from-92bec918161a#.daaju39ny

I am starting to think there is a very very good chance that the costs and hassle of regulation ("red tape") actually go up in the new world.

GfK Consumer Confidence data (this data point impacts GBP). Out last night. Informative summary with historical context in link below. Lowlight headline:

The GfK Consumer Climate for the United Kingdom fell sharply to -12 in July 2016 from -1 in the previous month, worse than market consensus of -8. It was the sharpest drop in more than 26 years and the lowest reading since end of 2013 after last month's decision to leave the European Union, as pessimism about the economy's prospects in the next 12 months rose to the highest level since April 2012.

www.tradingeconomics.com/united-kingdom/consumer-confidence

Don't you realise? This isn't an actual economic effect. This is the fault of the Remainers talking down the Brave New World of Brexit

We just have to think positively and it will all be fine. The world will be beat a path to our door in order to trade with us at advantageous terms to us, we'll be able to trade freely with the world without having to allow free movement, any problems are the fault of the government who didn't want it rather than the Brexiteers who wanted it......

I'd say it's still too early to be seeing effects and tying them to Brexit. It'll be interesting to see Q3 economic indicators coming out in about 3 months time but I think we'll start seeing the real stuff once there's a sense of how the Brexit negotiations are shaping up, so maybe in a year or two.

Tracking FTSE indices in the meantime is a mug's game.

Foxtons take a hit, post Brexit. The article doesn't say how their Chief Executive voted.

Don't you realise? This isn't an actual economic effect. This is the fault of the Remainers talking down the Brave New World of Brexit

Lol

It is an economic shock. However expectations play a part in how bad the resulting recession is/ will be. Note play a part in amongst other factors.

The gfk index is a confidence index I.e how people feel. It is not an actual economic effect. This one was taken between the 30th June and 5th July. Needless to say the remainers were very negative at this point.

Of course, consumer sentiment, if maintained, affects consumer spending, and thus feeds back into real economy.

Generally, though, if people see their own positions as unaffected, this type of one off shock is quickly reversed and has little effect on actual spending.

I think you're on a losing battle here Larry, the problem you have is the facts keep getting in the way :)

Small,

We will see.

There is a positive effect, tourism in London is up 18% on last year thanks to the falling value of the pound!

I am sure you mean to be sarcastic but tourism is a significant export. Other exports will be seeing the same positive effect.

To be honest, continuing devaluation is not economically positive but a one off devaluation can be, especially in dealing with a trade deficit.

Foxtons take a hit, post Brexit.

Every cloud....

I wasn't being sarcastic. Tourism is about the only benefit! Manufacturing might sell more abroad but as we buy most of our inputs in from abroad increased sales are offset by increased costs.

Small,

Is that last comment really true or are you making it up to suit your argument? A lot of our exports are services, where all the input costs are in sterling. In addition, I suspect that in a high labour cost economy, the majority of the input costs will be things like labour, mortgage or rental etc, as opposed to imported raw materials.

Of course, if you have data to back up your assertion, I will happily be persuaded of my error.

In addition, I suspect that in a high labour cost economy, the majority of the input costs will be things like labour, mortgage or rental etc, as opposed to imported raw materials.

I was thinking this too. In manufacturing, commodity prices are the same for everyone. Shipping costs might vary a little based on location. The biggest cost has to be the labour.

I should have said that the biggest variable cost must be labour costs.

"commodity prices are the same for everyone"

Not when you buy your oil/steel etc in dollars and other inputs in euros. The reason I was discussing manufacturing ( and some of our biggest exports are cars, and aerospace equipment etc) was that financial services tend not to be price elastic, people don't buy more of them because they are cheaper, where as manufactured goods tend to be price elastic.

In terms of this, the increased revenue from sales will probably be largely offset by an increase in costs.

I am sorry, I don't understand what you are trying to tell me.

Surely, the price of a tonne of steel is the same everywhere. Currencies go up and down, but steel is a world commodity as is coffee, wheat, sulfur, oil, etc. It would only matter if we were only consuming these products internally, if we are importing raw materials and then exporting finished goods, then the costs of labour is key for global competitiveness along with the perceived quality of our goods and the distance the goods will be shipped.

But if your currency is dollars and you buy steel in dollars then the price quoted per unit is what you pay. If you are having to buy in dollars but have to convert your currency from pounds and the pound has just collapsed against the dollar then you are going to get fewer dollars for your money and have to pay more.