Brexit revisited

But what does it all mean?

1) What might our new relationship with the EU look like?

Other than the new Prime Minister’s mantra “Brexit means Brexit”, we have heard so little detail about what Brexit actually means that we might genuinely claim to know less now than we did immediately after the vote.

It seems logical the UK would choose between three basic choices: membership of the European Economic Area (EEA) like Norway; falling back upon the World Trade Organisations (WTO) rules; or a bespoke UK trade deal.

Our European partners have been absolutely clear that if we want to be members of the Single Market then the EEA was the only way to achieve that (other than full membership).

That option, however, would never fulfil the ambition of being able to limit immigration from within the EU.

What was in doubt beforehand was which of the mutually exclusive priorities – membership of the Single Market or control of immigration - would take precedence.

It seems that Mrs May has settled the matter.

She has said the UK’s deal “must mean controls on the number of people who come to Britain from Europe but also a positive outcome for those who wish to trade goods and services”.

While the “positive outcome for those who wish to trade” is vague, the imposition of controls is explicit. Continued unfettered access to the Single Market will come as a result of some masterful negotiation or, more likely, it will be lost.

2) The pound’s weakness

In the days following the Brexit vote, the pound fell sharply against virtually all of its trading partners.

Under normal circumstances that should give it room to rise.

However, sterling’s inherent weakness stems from the UK’s trade deficit.

That means the UK must attract sufficient investment to offset the nation’s excessive spending.

It is logical to believe that the referendum has reduced the incentive to invest in the UK.

However, early evidence suggests the decline in the pound has been sufficient to offset this impact. Certainly there is anecdotal evidence of foreign buyers seeking opportunistic purchases in London property while the pound remains low.

3) Mortgage and interest rate cuts

The 0.25 per cent interest rate cut and other stimulus that the Bank of England announced will have added to the pressure on the pound.

The Bank’s actions were despite tentative indications that the near-term performance of the economy might improve.

We doubted whether the benefit of an interest rate cut would flow through to borrowers.

Generally, the rate cut was passed on to those borrowers with tracker or standard variable-rate mortgages.

Although the Bank left policy unchanged at its September meeting, it still took the opportunity to emphasise in its minutes that a majority of MPC members expected to cut interest rates again before the end of the year, to a level of just above zero per cent.

4) Stock-market benefits

The stock market has rebounded strongly from its immediate drop following the referendum.

With the process of leaving the EU yet to start, and confidence having broadly held up, the only meaningful impact on UK shares has been lower interest rates and a weaker exchange rate.

That combination of factors makes equities more valuable.

Many UK shares derive some part of their business revenues from overseas and those revenues are now worth more in pounds.

We still don’t know much about the future in a post-Brexit environment, but we have seen some very significant expressions of preference from policymakers.

The government appears to be willing to sacrifice membership of the European Single Market, in order to enforce a more prescriptive immigration policy.

It seems likely that this would have negative implications for the UK economy through reduced investment.

While the whims of policymakers are prone to change, for now these circumstances favour a portfolio containing equity investments.

There are, however, likely to be further twists and turns in the road out of Europe.