Following the conclusion of the referendum, which resulted in the majority voting to leave the EU, experts have been attempting to forecast the future of the UK economy. Despite the initial shock of the result, the British markets have reacted as many financial experts predicted, the value of the pound has fallen, and the Financial Times Stock Exchange has experienced some instability. Brexit has, and is likely to continue, to have an impact on the UK economy, but what does that mean for investors?
What is the impact of Brexit?
The Governor of the Bank of England, Mark Carney, has suggested that Brexit is expected to be the “most significant” influence on the British economy in the coming months. However, he added that the appropriate monetary response would be dependent on demand, supply and the exchange rate which could result in either a rate rise, or a rate cut.
There has been much speculation about how Brexit will impact investors, the following statements have been in circulation in the media:
- A ‘Bad’ Brexit is likely to result in sterling volatility.
- Corporate companies could see an increase in earnings, as the pound weakens in the aftermath of Brexit.
- Brexit will only impact investors if they attempt to guess the outcome.
Overall, the message being broadcast to investors is speculative at best. The economic woe which was predicted to result from the “out vote” has so far failed to materialise. The UK economy was shaken, but despite the result the economy has continued to grow and outperform other developed economies. Furthermore, the falling pound has also done nothing to hamper the FTSE; which set a new record high of 7,383.05.
Financial analysts are continuing to predict a degree of volatility for the stock market, however the UK and Brexit are not solely to blame, elections across Europe are all expected to have an effect.
How should investors react?
Given that even the Governor of the Bank of England is unsure of the impact of Brexit, it cannot be expected for everyday investor to have any idea. Financial experts have advised against making panicked decisions based upon rumours, speculation and uncertainty. It is however the prerogative of the investor as so how they chose to protect their investment against the impact of Brexit. The current recommendation is for investors to keep their yield goals at the forefront of their minds, and to continue to monitor the markets and economy.