By Alexander Green It’s been more than a year since the Brexit vote – the most significant event in the postwar history of Britain.
Months before Donald Trump’s upset election victory, it shocked the political establishment and briefly shook up global financial markets. Investors worldwide were taken aback by the “Leave” camp’s narrow victory.
I wasn’t one of them.
That’s not because I believe that the European Union is an anachronism. This single market, containing more than half a billion people, has undeniably benefitted Europeans by reducing tariffs and other frictions in trade.
But Britain’s membership in the bloc also involved a significant surrender of national autonomy to a group of unelected bureaucrats in Brussels. Commentators who deny the EU’s unpopularity clearly haven’t spoken to many Europeans about it.
The champions of the Brexit vote believe that it has saved their country from ruin. Its critics believe it has ensured it.
As is generally the case, the truth lies somewhere in the middle. Any major shift in policy has its winners and losers, and Brexit is no different. Even its most jarring consequence – a 12% drop in the pound – is a double-edged sword.
Let’s look at a few concrete examples…
The U.K.’s FTSE 100 Index – the equivalent of our Dow – is up nearly 20% since the vote. It set a new all-time high in the spring. Three quarters of FTSE 100 revenues come from overseas. That means British big businesses actually benefit from the weaker pound, as their wares are more competitively priced in foreign markets.
British manufacturing has grown handily since last summer, according to the benchmark Purchasing Managers’ Index (PMI). The CBI Business Optimism benchmark shows that U.K. business confidence has been positive for the first two quarters of 2017.
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The island is a major exporter of cars, medicines, metals and much more. Since Brexit, the men and women who produce these things have gained an advantage from the falling pound. And many of them are relieved that their economic fates will no longer be influenced by an unelected body of technocrats across the English Channel.
Of course, while the pound’s post-Brexit tumble has helped British exports, it’s done quite the opposite for British imports. That’s a problem, given that the U.K. has been a net importer for generations now.
Britain’s high standard of living would not be possible without globalization. The island imports computers and smartphones from China, oil from the Middle East, discount fashions from India and Bangladesh, and, of course, fine wines from continental Europe.
None of these would be affordable to ordinary Brits without free trade. The nation’s decision to turn away from its neighbors (and largest trading partners) in Europe will have consequences for consumers. We’re already starting to see them.
U.K. inflation has hit a high of 2.9% since the Brexit vote, largely thanks to the sharp drop in the island’s currency. That means prices are rising faster than wages are, squeezing household budgets across the nation.
Its financial sector is negatively affected as well. In a recent survey by the CFA Institute, 57% of respondents …read more
Source:: Investment You
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