Investment Clock insights

I cannot stress too much that Britain is part of Europe – and always will be


Trevor Greetham

27 June 2016

Boris Johnson sheds some light on how he sees Brexit in an article in today's Daily Telegraph (please click here to view the link). Citing the fact the vote was close and thus not a mandate for total disengagement from Europe, he argues for:

1. Full access to the common market
2. Free movement for British people to travel and work in the EU
3. A points-based immigration system for flow in the other direction
4. No European laws
5. A substantial sum of money not sent to Brussels "which could be spent on priorities like the NHS"

As a negotiating position this is a start, but not one that will convince many people in the rest of Europe as it appears to be the equivalent of having your cake and eating it.

Switzerland has no access to the common market for services including banking and must rely on bilateral deals. Norway has to abide by free movement of people and still makes a contribution to EU funds.

As a member of the European Economic Area, Norway has access to the common market but has to implement about 3/4 of EU laws, although having no vote in how they are arrived at. It's the same status as Liechstenstein - and Iceland, with whom England may get a chance to compare notes after tonight's football match.

Johnson adds a comment for the markets: "At home and abroad the negative consequences are being wildly overdone and the upside is being ignored. The stock market is way above its level of last autumn; the pound remains higher than it was in 2013 and 2014."

Presumably versus the euro. Versus the dollar it's at a 30 year low.

We expect uncertainty to persist for weeks to come, particularly as none of the key players are in a hurry to trigger Article 50, the formal exit procedure from the EU.

Perhaps the strategy is to negotiate an enhanced status within the EU and put that to another vote. Perhaps there will need to be a General Election. Meanwhile we expect uncertainty to weigh on UK growth and the pound, though there will be some good opportunities in global equity markets. The emerging markets, for example, stand to benefit from looser US monetary policy and it's hard to argue that the constitutional crisis in the UK is a big problem for China.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.