Andy Hart, head of asset finance at Investec, says the fallout from the Brexit vote will be long-lasting but Investec will stand by its introducers.
UK voters’ decision to leave the European Union has sent markets tumbling: amid a global sell-off in risk assets sterling has fallen dramatically against the dollar.
At this stage we feel that it is premature to make new market predictions, in fact trying to identify the right questions is a big enough challenge for now. However, it is clear that volatility will not be confined to domestic markets as investors fear a domino effect of anti-establishment feeling elsewhere in the EU. The most obvious question mark is how the EU evolves from a Brexit and what the specific implications are for the Euro area.
Despite David Cameron’s announcement of his intention to resign, the period between now and the Conservative Party Conference in October should deliver an element of continuity. In the meantime, Mark Carney at the Bank of England has said that along with the Treasury, they have made extensive contingency plans to get through a period of post-vote volatility. We do not envisage a hike in rates to counter the inflation implications of the weaker pound. In fact, we tend to the view that the MPC may well cut the Bank rate modestly, from its current level of +0.5%, to offset the effects from what is likely to be a weaker economy.
The economic consequences of Brexit will likely play out over a longer term than the market response, although some early indicators should become clear quicker: we expect the uncertainty to hit domestic demand, with an adverse impact on investment decisions of UK firms and spending decisions of UK customers, which had already been suffering in the run up to the vote.
In terms of UK export demand, there may be some boost from the weaker pound. The added uncertainty of the implications for the remainder of the EU, could add a further drag on demand as Europe’s economy may also suffer.
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It is an interesting time for our industry and country, and we will continue to actively support our introducers in all ways possible. This will include the provision of finance to UK SMEs and corporates to support the backbone of the UK economy. Investec is strong and resilient and we’ll approach the changing environment as we always do – with energy and optimism.