Hard Brexit uncertainty hard to shake off

Hard Brexit uncertainty hard to shake off

Economic uncertainty will be hard for the UK to shrug off over the medium term, advisers have claimed.

Although the FTSE 100 and FTSE 250 have been on strong growth trajectories, the underlying macro-economic factors such as Sterling's slide, rising inflation and ultra-low interest rates have made some advisers and investors feel nervous about growth prospects for UK plc.

This nervousness is affecting both equity investment and bond investments. John Husselbee, head of multi-asset for Liontrust, said UK bondholders were starting to suffer capital losses.

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He explained: “UK government bonds – one of the most popular traditional ‘safe havens’ from market volatility – are now selling off (meaning that their price falls and yield rises) after a multi-year bull run.

"As a standalone asset class government bonds is one of the most expensive ever. But investors have chosen to hold them for their diversification and downside protection benefits.

"However, following the post-referendum fall in the pound we are seeing imported inflation and rising rate expectations – meaning bondholders are beginning to suffer capital losses, not capital protection.”

A poll conducted by FTAdviser Advantage found only 7 per cent of advisers were confident the UK economy had shaken off the post-Brexit vote uncertainty with success and was now on the way up.

In October, figures for the construction, manufacturing and agriculture sectors fell 1.4 per cent, 1 per cent and 0.7 per cent respectively.

However, not all analysts have predicted gloom. Adrian Lowcock, investment director for Architas, says the UK has been able to "shrug off" the Brexit vote, based on two key indicators:

-        GDP grew by 0.5 per cent in third quarter of 2016.

-        Services grew by 0.8 per cent over the same period. 

Mr Lowcock said: "The Brexit vote has so far had little impact on the UK economy according to the initial estimates, and the trends we have seen in the UK with a growing services sector and shrinking manufacturing and construction industry continue.”

“The weak pound is already benefitting UK companies with overseas earnings  but it will need to stay low for longer to have an effect on the economy.

"We don’t think the initial impact of the Brexit vote on the UK economy will be known until next year and the full impact of Brexit is only likely to be felt after the exit process has been completed, which could take years.”