Updated: Jan 29
With disruptions at European borders and supply chains perturbed by new tariffs, the U.K. economy has begun to show the negative economic impact of leaving Europe’s single market and customs union at the beginning of the year, several indicators show.
Gita Gopinath, the chief economist of the International Monetary Fund, said this week as she was presenting the organization’s new economic forecast, that Brexit would shrink the U.K. economy “by about 1%” this quarter.
It was the only economy whose performance in 2020 was downgraded by the IMF, which estimates the country’s gross domestic product fell 10% last year.
Surveys by data company IHS Markit show that U.K. manufacturers and service providers are reporting the most severe disruptions of their supply chains, which is “almost exclusively linked to both Brexit disruption and a severe lack of international shipping availability.”
Freight volumes between the U.K. and the rest of Europe were down 38% in the third week of January compared with last year.
Paperwork, higher costs and compliance delays are severely affecting the traffic of goods on the U.K.-European Union routes, but they have an even more severe impact on trade between Britain and Northern Ireland, which remains in the single market.
The Office for Budget Responsibility, the official fiscal watchdog, predicted back in November that Brexit would shrink the U.K. economy by 4% in the long run with a free trade agreement such as the one that was signed between the two sides just before Christmas.
“For myself I am an optimist - it does not seem to be much use to be anything else.” ― Winston S. Churchill
Were all probably sick to the stomach about Brexit!
The referendum, over four years of transition, the long-drawn-out game of brinksmanship to forge a trade deal and all the commentary that entailed, which was only diluted by Covid19 for the British political and economic commentators.
So, is this the end? Afraid not. In the here and now we will see unpredictability in the markets.
The truth is markets don’t like uncertainty and Britain is embarking on a new trading era in uncharted waters.
What next? the UK Government is already hinting that there will be disruption for businesses and even individuals with the new relationship with our not so ‘kissing cousins’ over the channel.
Who will be affected in the immediate aftermath of the Brexit exit and which industries will suffer most?
How will Sterling and the FTSE100 react in the short term? Crucially, what will be the impact on the economy?
It’s all impossible to accurately predict, but I bet, there will be winners and losers and for the trader, opportunities to speculate the volatility. Sharp fast movement. Like a scouse girls knickers on a Friday night, (its ok, I’m an adopted scouser and married one, she says its ok to mention)
We got a glimpse last week of the reaction as the UK market opened for the first time since Christmas and the FTSE reacted, big initial jump of 2.5%, best performance since March, but hang on, will it last?
Who cares, a 2.5% rise on positive sentiment is an excellent movement for a day trader predicting correctly.
Markets don’t like uncertainty, blimey, we’ve had a lot of that. Although across the Pond, Wall Street is breaking records, the FTSE has underperformed for a long, long time.
Red tape, farmers, manufacturers, vat, 2 processes to sell in the EU, getting a headache?
80% of the UK economy is services! Very vague details disclosed about this sector in the initial agreement.
With Financial Services, Boris Johnson admitted the deal doesn’t go as far as we wanted. Oh oh.
In the last PM question time, Boris spent most of his answers dodging questions about the service sector and finance and repeating how great it is to have independence, and the ability to fish in sovereign seas. Though an important sector of the economy, not as important and the finance sector. As for British fish, not sure if they need a passport to enter?
As for Sterling, we are getting mixed views as always from analysts. Some are predicting an influx of investments in the newly sovereign British economy, other say the transition will take a long time and adversely effect the economy. For a day trader, they will be pouncing on good or bad commentary and taking the opportunities that arise.
What do we know will change? There is a long list but what about the service sector?
Not much said about the financial sector in the trade deal, I’m sure the Europeans have always glanced enviously at the UK’s financial services clout over the years, and they will want a chunk of that.
Banks accounted for four of the five biggest fallers on the FTSE 100 after the deal was announced, with worst-hit Lloyds suffering a near-4% drop. Again, good for a trader who predicted it.
One analyst, Shanti Keleman from Brown Shipley, put the falling UK bank shares down to "no agreement on financial services equivalency in the Brexit deal".
Another term for equivalence, clout. Surely that can’t be good news for UK finance.
Which other sectors that may be adversely hit, other than banks?
Pharmaceutical industry, automotive industry, airlines.
UK-based airlines will have to rethink their European routes, in keeping with EU laws and regulations. They will also have to recalculate fares and routes, taking into account the cost of visas.
EasyJet saw a 20 percent drop in its share price following the Brexit vote four years ago, how will the stock react today, especially coupled with the pandemic? As of writing this, stock down 2.5% today, volatility anyone?
All four sectors will have to rely on maintaining strong relations with the EU and its member states to uphold stable trade deals with European countries, not as easy as it sounds.
To conclude, what the deal says.
Some new checks will be introduced at borders, such as safety checks and customs declarations.
Will this slow down the movement of goods? Time is money.
Businesses will need to prepare for new procedures at ports, and if new paperwork is incomplete, it could lead to disruption.
Rather than following one set of rules for the whole of the EU, UK businesses will need to comply with the regulations in each individual country.
Although, the UK and EU have pledged to keep talking to try to improve access for the service sector in the future, no doubt there will be uncertainty and with this volatility with certain sectors and therefore individual stocks.
The outlook: Prime Minister Boris Johnson recently qualified as “teething problems” the many incidents and trade disruptions triggered by the start of Brexit. But from British fishermen to City of London finance professionals, many rather expect the government to act to try soften the blow.
The massive economic hit triggered by the COVID-19 pandemic may help hide the detrimental Brexit impact to the general population in the first half of the year. But it is hard to see how the government will be able to mitigate the consequences of being an outsider to the single market without taking steps back toward the EU and opening further discussions.
What do you think? will Sterling go down or surge? Through trading CFDs, you can try to profit from both positive and negative price fluctuations by either taking a long position, speculating that the Sterling will rise, or a short position, speculating that it will fall.
Over to you, I know what signals I will be following, Reuters and BBC for sure.
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