Now that two weeks have passed since the momentous referendum result on 23 June, some of the implications for markets and the UK economy are becoming clearer. On Wednesday, sterling touched a 31-year low against the US dollar. Briefly, the pound reached $1.2796, a level last seen in June 1985. Nevertheless, it has some way to go before matching its all-time low; in March of the same year, it came pretty close to parity with the greenback at $1.0520.
The benefits of a weaker pound for those FTSE 100 companies that earn the bulk of their revenues overseas are well known, but those with a domestic focus are likely to suffer. This was demonstrated by some of the corporate earnings forecasts that were released during the week. Pest-control company Rentokil, which makes the majority of its money abroad, predicted an increase of £15 million in its 2016 profits compared with its previous estimate. On the other side of the coin, though, Sports Direct was concerned that the faltering pound would act as a considerable drag on this year’s results. The FTSE 100 index was down 0.7% for the week to close on Thursday.
Gilt-edged and golden
Government bonds were in high demand this week – the yields on the 10-year debt of the British, German, Japanese, French, Australian and US governments all reached record lows. Gold was also near the top of investors’ wish lists – a troy ounce would have set them back $1,367.10 on Wednesday, the highest price in two years. Commercial property was in the news, too; several of the largest funds in the UK have implemented special measures that temporarily prevent investors from withdrawing their cash.
Balanced-books backdown
It seems that UK shoppers are already suffering from the Brexit blues: according to a survey by market research firm GfK, consumer confidence has reached its lowest level in 21 years. Meanwhile, the Office for Budget Responsibility announced that the current uncertainty had led it to delay the release of its medium-term forecast, which was due out this week, until November. It seems that George Osborne has taken the foot off his austerity brake, abandoning plans to balance the budget by 2020. The Chancellor has also indicated that he intends to reduce corporation tax. In other political news, ‘Leave’ campaigner Michael Gove is out of the running to lead the Conservative Party and become Prime Minister. The race is now between Theresa May, the Home Secretary, and energy minister Andrea Leadsom.
And finally…
The English have always been good at hedging their bets. Take Raedwald, a seventh-century king of East Anglia. The major constitutional issue of his day was whether he and his subjects should convert to Christianity. Raedwald decided a balanced approach was best. So he built two altars side by side – one Christian and one for offering victims to devils. Just in case …
We don’t know how it worked out for Raedwald in the afterlife. But it’s perhaps no surprise that today’s English voters sometimes take a similarly equivocal approach to constitutional issues. According to the Electoral Commission, some 357 people in the Greater Manchester area tried to vote both Leave and Remain in last month’s referendum. As with Raedwald, we’re still waiting to hear if they think their strategy was a success …
