Posts
Source: BBC
During the entire past few years, nobody really believed the British population would indeed vote to leave the European Union, and the anti-EU movements were predominantly seen as just some uneducated story tellers. Prime Minister Cameron wanted to strengthen his leadership position and called for a Brexit-vote, thinking the proposal would be voted down by the population.
We all know how that ended, and the anonymity of the polling station caused people to cast a lot of protest votes. Even though they were uninformed about the true potential result of a no-vote, voting ‘no’ would be interpreted as a sign of ‘civil inobedience’, and a clear signal to the government. Very few people expected the No-camp to win, although most polls indicated it would be a tight race with the ‘yes’ and ‘no’ camps just a few percentage points away from each other.
Source: NY Times
But the semi-unimaginary happened, and the first few days after the voting results were announced, politicians and economists from all over the world were chiming in with their opinions, and most of them had a firm position the Brexit-vote would push the country in a new recession.
The Bank of England acted swiftly and announced a huge easing package in the summer as the central bank planned to spend a total of 435B on government bonds to keep the borrowing costs for the British government under control. On top of that, the BoE slashed the base interest rate by 50% to 0.25% to make sure the economy would have enough oxygen to digest a potential Brexit, and to deal with the nervosity surrounding leaving the European Union.
Unlike other Central Banks, the BoE effectively still had some firepower to keep the economy going, and this would not have been the case if the country would also have been part of the Euro-block. The immediate reaction by the Bank of England nipped a potential negative impact on the economy in the bud. The four point plan of the BoE is actually working, and it now even looks like the country could avoid the feared recession in the second half of the quarter.
Source: stockcharts
Indeed, if you look at the previous chart with the EUR/GBP exchange rate, the British Pound became substantially weaker on an overnight basis and even though this is bad news for the British citizens consuming foreign-sourced commodities and products. However, the cheaper Pound strengthens the country’s ability to export its own products. We would also expect a huge boost in the country’s tourism sector in the second half of the year. Not only did a city-trip to London get 10-15% cheaper almost instantly, more people will also choose for a domestic holiday, rather than having to spend 10% more to go to the Spanish Costa’s or Greek isles.
Source: statista.com
Our thesis seems to be underpinned by recent data coming out of the UK which is indicating the GDP growth should remain positive in the current and the next quarter and this will obviously make the BoE reluctant to reduce the interest rates even further. Of course, the country does remain in the ‘danger zone’ as the Brexit vote will rattle the consumer confidence, and the impact of the lower confidence level will only become visible from this month on as this is the first non-holiday month on the island. However, the swift transition from the Cameron-led government to a new government with Theresa May also eased the fears of a political crisis following the vote, and it looks like the UK has all its ducks in a row now.
We hope Greece and others are paying close attention, as leaving the Eurozone doesn’t necessarily kill your economy, as the increased sovereignty of the United Kingdom and Great Britain is now proving.
> The domino's are falling. Read our Guide to Gold right now!
Secular Investor offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies are transformed into the Gold & Silver Report and the Commodity Report.
Follow us on Facebook @SecularInvestor [NEW] and Twitter @SecularInvest
0 comments:
Post a Comment