The events of the last few weeks have led some to wonder whether we are seeing the first signs of Brexit ‘going wrong’, most notably with the stock market on a severe downwards spiral.
However, looking at one variable in isolation is rarely a helpful exercise, so let’s instead explore the various metrics that we can use to gauge how Britain’s economy has performed since the day of the vote.
Stock market prices
The FTSE 100 is arguably the most well-known UK index, and it represents the top 100 companies that are currently traded on the London Stock Exchange. However, the FTSE 100 is capitalisation weighted, so the more valuable a company as regarded, the greater the effect it has on the FTSE 100. If Royal Dutch Shell or HSBC have particularly bad days, they can make the index drop substantially. If Morrisons has a bad day, it’s much less severe, as its total value is far, far less than the first two.
The most recent stock market drop was in response to the likelihood that the US Federal Reserve (the US equivalent of the Bank of England) would raise interest rates, ending easy access to low-cost credit. In addition, it has started a bond maturation scheme, releasing a lot of debt and not replacing it.
This caused what many analysts called a “correction,” which basically means that the stock markets dropped because they had been overpriced (i.e., investors had been overly optimistic). The UK markets have been somewhat more vulnerable, mainly because Brexit has a number of people rather nervous. Shocks tend to be a little bit more extreme, and that is currently the limit of Brexit
House prices are an important metric because they reflect consumer sentiment. Essentially, if you can afford more, you will likely offer more, and it also reflects the desirability of owning a house. House prices were anticipated to rise by 1.2% for the whole of 2017, according to expert opinions collated by estate agents Yopa, and these reflected the uncertainty of Brexit and the possibility that a hard Brexit would result in a recession.
However, house prices over 2017 actually rose by 4.8%, which essentially means that many of those fears were unfounded, and consumer confidence has risen. That said, it also reflects the fact that housing is limited. If interest rates rise significantly, which is a distinct possibility, a lot of people could lose out and be unable to afford their house.
Naturally, this would lead to a dip in the housing market. Similarly, if there were extended job losses as a result of Brexit, most notably in the financial and import/export sectors, house prices would go down, especially in London and in the South East.
This hasn’t happened, yet, and at the moment most people are waiting to see what actually happens.
Currency is always an interesting one, mainly because it is a little more predictive than the stock market. When the announcement came that the UK had voted to leave the European Union, the pound dropped like a stone against the dollar, with the dollar eventually being worth 84p – before the vote, a dollar was worth 65p. However, the pound has largely recovered, although there are some jitters about Brexit, and analysts price the dollar at around 70p.
It does make imports significantly more expensive, particularly the electronics that we require to function as a nation. However, a low pound may boost exports as relative prices have gone down in terms of labour.
So what does this all mean?
Brexit hasn’t formally happened yet, although we have served our notice of intent by triggering Article 50. Most companies seem to be adopting a wait-and-see approach, trying to gauge what will likely happen, but growth has slowed down somewhat. When Brexit finally happens, it seems likely that growth will slow a little further compared to the Eurozone, but – as with all things – no-one can really predict the future.
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