UK equities
Panic was expected in stock markets after the vote and, sure enough, there was an immediate sell-off.
UK shares plunged as investors reacted to the vote for an EU exit, and the spectre of recession that came with it. The FTSE 100 fell more than 8 per cent in the initial minutes of trading, with banks hit especially hard. A similar sharp drop was seen in the more domestically focused FTSE 250.
But the main market has since climbed 17 per cent and has set more than one new record high this year, partly as a function of the weakness in sterling.
Bonds
UK government bonds were expected to be a clear barometer of market feeling on the UK. HM Treasury’s analysis ahead of the vote suggested a 40 basis point jump in the government’s 10-year borrowing rate, while investors predicted yields would fall given the political uncertainty and shortage of safe havens.
In fact, 10-year gilt yields fell to a record low of 0.93 per cent at the end of Monday 23 June.
Alix Stewart, fixed income fund manager at Schroders, said: "In bond markets, 10-year gilt yields dropped sharply after the vote; from nearly 1.4 per cent on the day to under 1 per cent in pretty short order.
"After the BoE decided to cut rates last August, yields fell as low as 0.52 per cent before recovering fully as the 'Trumpflation' trade took hold.”
The pound
A huge slump in the pound was one scary scenario which did come true. The pound bore the brunt of panic over Brexit, hitting a 31-year low against the euro. Since its peak in August 2015, the euro to sterling exchange rate is down 21 per cent.
Heartwood IM’s Graham Bishop said: “Sterling’s devaluation in response to the shock UK referendum result has been the most significant market event in recent years. It has yet to materially recover from its post-referendum low and now remains vulnerable to even more political and economic uncertainty.”
On the plus side, the pressured pound has helped lift the shares of the overseas earners and exporters on the FTSE 100.
Economic contraction
Fears of an outright recession have proven unfounded in the year since Brexit, but we are not out of the woods yet.
Ed Smith, asset allocation strategist at Rathbones, says he is now placing a higher probability on an adverse outcome for the economy than he did before the referendum, up from 10 per cent to 30 per cent, because of the threat of a ‘hard Brexit’.
Azad Zangana, senior European economist at Schroders, says most economists were predicting a downturn immediately after the vote.
“The economy accelerated immediately after the referendum. Households ignored the depreciation in the pound and the growth in consumption accelerated. This took the UK economy to the top of the G7 growth table by the end of 2016.
"However, the spurt of growth was unsustainable. As economists had predicted, the depreciation in the pound helped inflation to rise sharply, which in turn squeezed real disposable income. With savings rates at record lows, households had no choice but to cut back spending. This took the UK economy to the bottom of the G7 growth table by the first quarter of 2017.”
Financial services
The biggest fear for the financial services sector was the City of London losing its status as a key financial centre as big banks moved their operations to the EU.
Certainly, some such as Goldman Sachs and Morgan Stanley have said they will move staff out of London, and this week Japanese bank Daiwa chose Frankfurt as its base.
For Mr Smith, the financial sector is the number one concern in a post-Brexit world. “If the UK failed to negotiate a bilateral agreement that enshrined the continued passporting of its financial services, it is difficult not to envisage a gradual loss of business and investment.”
Capital flight
Another widely-prophesied risk was that there would be a quick exodus of money from UK assets. Ms Stewart says this has not happened so far, but companies have put investment on hold until they get a clearer picture of how post-Brexit Britain will look.
"The main uncertainty will remain the shape of Brexit and to what extent investment intentions get pushed back, awaiting more clarity. For now, there doesn’t seem to be capital flight from UK assets, but continuing political uncertainty could lead to more of a risk premium being required in the future."
Adviser view
Scott Gallacher, chartered financial planner at Rowley Turton, said: "For us the biggest surprise was the Bank of England's interest rate cut, we didn't see that coming.
"Generally, from an investment perspective, in the short-term Brexit has been good for investment returns. The interest rate cut helped bonds, and most client portfolios contain overseas earners which have been helped by the weaker pound.
"The only ones which really suffered were UK smaller companies investments. But overall, our clients were happy."
hannah.smith@ft.com
