The world seemed to unravel further last month, with British voters electing members to the EU Parliament whose goal is to leave it, and Donald Trump continuing to wield his trade cudgel. Our chief investment officer Julian Chillingworth considers the implications.
We spoke and we declared: Brexit means Brexit, regardless of the risk. Our votes put the Brexit Party at the joint-largest position in the EU Parliament (if you ignore transnational coalitions), quite a punchy political statement.
Sadly, for all the furore, bad chat and heartache of the past few years, voter turnout barely budged on five years ago. Only 40% of UK people bothered to show (although let’s not forget the few thousand European residents who were denied their votes by incompetent British bureaucrats). The Brexit Party raked in the most votes in every region of the country bar the capital, Scotland and Northern Ireland. Mr Farage had no manifesto (because everyone lies about them anyway) and was bankrolled by questionable businessmen. It didn’t matter because it was obvious what his party stands for: it’s right there in the Brexit Party name.
It was the worst showing in a national election for the Conservatives in all history. The morning after the EU polls closed in the UK, their leader – the Prime Minister – announced she would resign effective 7 June. Now the race for her successor is on with various hopefuls vying for the job. Leading the pack by a large margin is eurosceptic Boris Johnson, lucky recipient of Trump’s very public backing.
As for Labour, well, who knows? But it is a badly kept secret that leader Jeremy Corbyn had to be badgered into leading the party’s remain-ish platform. He could now have the impetus to twist the party’s stance closer to a hard Brexit too.
We’ve always believed that a hard Brexit, while the worst possible result for the UK economically, wouldn’t mean the destruction of our nation. Instead, it would more likely than not mean fewer opportunities for UK businesses and people, less investment from abroad and higher prices in the shops. All these things are insidious: they erode living standards over time, so the UK would find itself worse off than it would otherwise have been (in our opinion, based on hundreds of hours of research).
The 10-year gilt yield slumped considerably in May and it was no different in the final week. From 1.19% at the beginning of the month, it ended at 0.89%. Government bond yields tend to fall when inflation or GDP growth is lower than expected or when other risks rise. Inflation undershot slightly last month, but remains above the central bank’s 2% target. The latest PMIs, surveys of business’s output and confidence, were mixed – the manufacturing index slumped more than expected to 49.4 in May from 53.1 the month earlier, while the services index (representing a much larger swathe of the economy) rose slightly to 51.0 from 50.4.
Source: FE Analytics, data sterling total return to 31 May