Investments  

Shock to the system

This article is part of
What next for the UK? - July 2016

But the Investment Association (IA) appealed to investors to maintain their focus on the long term as markets reacted violently to the immediate outcome of the referendum. The IA reminded the industry the “rules and regulations governing asset management remain unchanged” as the UK remains a member of the EU for now.

The trade body suggests: “The focus in the short term will be on how markets respond, but it is important that we adopt a collective long-term focus on how the UK can preserve the pre-eminence of its financial services sector, including our £5.5trn asset management industry – the second largest industry of its kind in the world.

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“The IA is confident our industry will be able to continue to compete overseas.”

One of those not forecasting a recession in the UK is Azad Zangana, senior European economist at Schroders. On June 24, he confirmed Schroders would be revising its growth and inflation forecasts, with the former likely being downgraded and the latter upgraded, “but we are not forecasting recession”.

KEY FIGURES

7.2%

The FTSE 250 closed down 8 per cent on June 24 following Britain’s decision to leave the EU

51.9

Percentage of votes for the Leave campaign

30 years

Sterling slumped in the wake of the result to hit a 30-year low against the dollar

Rory Bateman, Schroders’ head of European equities, echoes Mr Carney’s sentiment, pointing out “the banks are in a much better state than they were in the financial crisis”, reiterating “there will be no general banking crisis”.

“Beyond that, we don’t know when Article 50 will be invoked. Uncertainty around the process of withdrawing from the EU will not help markets,” he notes.

The reactions, against a backdrop of uncertainty, mean many managers can only speculate as to the extent of the fallout from the outcome of the referendum.

Vice chairman of Jupiter Fund Management, Edward Bonham Carter, asserts: “In the immediate term, the political drama will far outweigh the economic impact of this unprecedented decision, in my view. This uncertain political climate is likely to dominate proceedings for some time. From an investment perspective, it will be weeks or months before the full implications start to be understood and, during this period, we will need to prepare for, potentially, greater volatility in financial markets than we have seen since the end of the financial crisis.”

Mark Barnett, head of UK equities at Invesco Perpetual, sought to calm investor nerves though: “Over the longer term, we believe the UK economy can cope with life after Brexit and we remain optimistic about the future. We have a dynamic economy that has adapted to change before – and is now primed to adapt again to whatever change is thrown at us.”