Britain reaping the whirlwind of Remain campaign ‘project fear’ rhetoric

Post the Brexit vote, the pound sterling is down around 8-9% from the kind of level it was at for most of the couple of weeks before the vote, while there seems to remain a distinct element of pending gloom in much of the economic commentary and the general opinions of the more economically aware in the country’s financial centre.

Should this be so?  The more representative market index – the FTSE 250, which includes many smaller companies not represented in the most quoted FTSE 100 Index of the top 100 London Stock Exchange companies – is actually higher than it was in mid-June (just) but commentators only seem to mention the immediate post-Brexit vote fall of around 13.6% , and ignore the fact that it had peaked ahead of the referendum in anticipation of a Remain vote, and has since recovered a good part of the lost ground.  Year to date the FTSE 250 is down 6% – but is running 6% higher than at its low point in mid-February – hardly a stock market meltdown as many had been predicting.  Indeed if one looks at the larger companies which comprise the FTSE 100 index this is actually 3% HIGHER than its mini peak on June 23rd when Remain appeared the most likely referendum result.  This certainly doesn’t seem to represent a particularly downbeat outlook by the market professionals.

Gold of course has risen in the dollar, and obviously rather more so in the pound, which is a positive for those who took our advice and bought some gold, or gold derivatives, ahead of the referendum as insurance against a possible Brexit vote.  Again we had not ruled out a result for the vote to leave the EU ahead of the referendum vote contrary to the opinions of most of the media, politicians and economists.  We had recognised the big underswell of anti-EU feeling in the country which did not seem to be being picked up by the opinion polls.

But even the performance of those elements which have come back quite sharply like the pound could probably be at least partly blamed on the tenor of the Remain campaign which was preaching huge negativity should the vote be to leave.  Some would say Remain campaigners are thus being proved correct, but could this just be that they had imbued such a negative opinion in the minds of the sector of the populace which voted to Remain in the EU that we are now reaping the consequences of such a ‘project fear’ campaign?

Interestingly though some of the European stock markets have fared far worse than the UK ones.  Germany’s DAX Index for example is down 5.6% on the year, the French CAC down 6.4%.  Spanish and Italian indexes fell even more.  One wonders where the Brexit vote is impacting most – it doesn’t seem to be the UK?

It is notable that there is already a degree of backtracking on the likely adverse effects of the Brexit vote by the politicians of all hues who are now desperately trying to see positives in the result however much they may, at heart, disbelieve them.  There should, for example, be much comfort in that the financial markets actually on balance seem to be positive rather than negative.  This could suggest that the pound may be oversold too, although it is showing little sign of recovery so far and is still slipping back against the dollar and the euro.  In this context it should be noted that Britain imports a far greater value of goods from EU nations – Germany in particular – than it exports to them, and while much was made by the Remain campaign of the possibility of UK exports to the EU being cut off in the case of a parting of the ways, the imposition of trade barriers would seem likely to have a greater impact on the EU than on Britain itself.  One suspects that self-interest will predominate here and reciprocal trading relations will be largely uninterrupted even if official trade deals may be slow in being negotiated.

The lower value of the pound could also boost consequentially less-costly UK exports globally, although would make imports more expensive.  It could also work against that other threat of multinational organisations moving manufacturing plants out of the UK as the resultant lower cost of goods by remaining might more than balance the possibility of the imposition of tariff barriers inside the EU – if indeed this were to occur.

While the prospect of Brexit would not be ‘a storm in a teacup’ as some optimists and Leave campaigners might suggest, it may well not be nearly as disastrous for the UK economy as the Remain camp was saying only 10 days ago.  But the belief in their rhetoric is in itself having an adverse effect on sentiment and may continue to do so for some weeks and months.  This will likely settle down as politicians change their tune on the fait accompli of the Brexit vote with more positive statements certain to flow from those who only a week or so ago were preaching doom and gloom.  While the UK economy may be in for a difficult several months it may not be nearly so badly affected once things are seen in the cool light of day as the anti-Brexit commentary inevitably dies down.

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