By Henrietta Brealey, GBCC
This Week In Brexit: The Economy
It is hard to believe that a mere 192 hours ago (at the time of writing) polls had just opened for the EU Referendum. Suffice to say, it’s been one heck of a week, here are some of the key developments in the economy, for key developments in politics keep an eye out for a post I’ll be publishing later this afternoon:
Volatility and Uncertainty have been the watchwords of the week.
In response to the leave vote, ratings agency Standard & Poor cut the UK’s down two notches from AAA to AA, while rival agency Fitch lowered its rating from AA+ to AA. This will most likely increase the amount it costs the UK Government to borrow money in the international financial markets.
FTSE 100 and FTSE 250
The FTSE 100 closed at a 10 month high on Thursday, a major turnaround since last Friday’s trading saw £120m wiped off the value of the UK’s top 100 companies in the immediate aftermath or the result.
Many commentators view the FTSE 250 as a more accurate measure of confidence in the British economy as FTSE 250 companies tend to be more UK focused than the largely internationally focused FTSE 100.
The FTSE 250 also saw some rallying on Thursday closing up 1.68% but still significantly below its pre referendum levels.
The Pound Sterling dropped to a record 30 year low in the immediate aftermath of the referendum result, falling sharply against the Dollar and Euro. It too recovered some of its value in the intervening period but saw a fresh slump on Thursday evening in response to the Bank of England’s announcement regarding a potential interest rate cut.
Bad news for importers and holidaymakers, but a potential silver lining for UK exporters.
While strong leadership may have been somewhat lacking in the political sphere, the Bank of England has come in for praise for its decisive handling of the “leave” vote. In the immediate aftermath Mark Carney, Governor of the Bank of England, issued a strong statement, outlining plans including the BofE’s willingness to provide more than £250bn of additional funds to support the functioning of markets.
On Thursday evening he issued an additional statement in which he predicted summer stimulus and a cut to the Bank’s key interest rate – already at a record low of 0.5%. This helped boost the FTSE 100 and FTSE 250 but also further hit the value of the pound.
Back out in the wider business environment, a number of big hitters announced adverse consequences or plans to review the scale of UK operations this week including: Vodafone, EasyJet, Siemans and Virgin Group.
What does this mean for Chamber members? It’s hard to know exactly at present. We won’t see the real impacts of this (so far) short term volatility coming through in official data for some time yet.
If you are a Chamber member and have already been directly affected by the referendum result to date (in good or bad ways) please do get in touch on H.Brealey@Birmingham-Chamber.com. It will directly help support our, and the British Chambers of Commerce’s, lobbying work.
This Week at the Chambers:
It’s been a busy week for us too at the Greater Birmingham Chambers of Commerce. Our first priority was to inform members about the result, what it means for their businesses and act as a voice of calm reassurance as we saw no material changes in the UK’s official relationship with the EU. Click Here for more information.
We’ve also been getting ready to launch our post-referendum campaign. It seems pretty clear to many of us that the Government is going to be tied up in internal politics and then the minutiae of renegotiations for quite some time.
Rather than wait for direction from them on their vision for our country, we’re going to be cracking on with what we can in the region. We’re going to be working on helping more businesses than ever export and explore new markets, making the most of this dip to the value of the pound. We’re going to be providing support for businesses to help them feel more confidently “Brexit ready” and actively promoting the region as the best place in the UK to live, work, do business and invest. And we’re going to continue to connect our members to the big debates of the day on emerging structures like the West Midlands Combined Authority and the Midlands Engine. In short, we’ll be helping define our own future.
Keep up to date on the latest here.
Henrietta Brealey is Director of Policy & Strategic Relationships at the Greater Birmingham Chambers of Commerce.