Sxity Second Summary
Brexit: Keeping members on the right path
06 Sep 2019
What actions should trustees take to support good outcomes for members?
Earlier this year, the EU agreed to an extension to the Brexit-deadline, which is now set for 31 October 2019.
In this article, we consider the potential impact of different Brexit outcomes on members, and steps trustees and committees may wish to take to keep members on the right tack.
What are the possible Brexit outcomes and impact on investment markets?
Given the repeated rejection of the negotiated deal, the passing of the initial Brexit deadline, Theresa May’s resignation and the nomination of Boris Johnson, the uncertainty around the UK’s exit from the EU has increased. The type of Brexit that will be faced by the British people is not clear, although we would currently categorise broadly as follows:
“Soft Brexit” - one that markets generally support, and that is considered broadly supportive of the UK’s current competitive position. In this scenario, we would expect an uplift to UK GDP growth, modest strengthening of sterling and the expectation of modestly faster interest rate rises in future.
In this scenario, we would expect the value of most members’ investments to fall, reflecting sterling strength, and rising interest rates.
“No-deal” - immediate disruptive elements to trade and ongoing uncertainty over the UK’s competitive position. We would anticipate downward pressure on sterling and prolonged lower interest rates associated with more marked slowdown in growth. A combination of higher expected inflation and a higher inflation risk premium is expected to push real yields materially lower.
In this scenario, we would expect the value of most members’ investments to rise, reflecting sterling weakness, and falling interest rates. The value of UK property investments would be expected to fall in the short term.
“Ongoing uncertainty” - the current impasse in parliament over the acceptance of the negotiated deal continues and the UK agrees repeated extensions to the Brexit deadline. The ongoing uncertainty is likely to lead to an ongoing deferral of investment which will lead to a contraction in UK GDP growth and a gradual further weakening of sterling. A deferral of investment and shunning of UK assets would lead to falling UK equity and property markets and credit spreads would widen.
The value of members’ investments would be expected to fluctuate by more than average in the short term. Similar to a no-deal scenario, the value of UK property investments would be expected to fall in the short term.
Download our full summary for the potential impact on members and the importance of keeping members on the right path.
If you have any questions about anything covered in the summary, please don’t hesitate to get in touch.