Brexit: busting the myths part one

It’s been just over a fortnight since Rathbones and The Spectator hosted a frenetic Brexit debate at the London Palladium. Yet in that short space of time the decision around ‘should we stay or should we go’ has continued to gather pace. And, just when you thought the debate couldn’t get any more farcical, the prime minister has issued a warning that Brexit could lead to World War III and Boris Johnson has been spotted waving a pasty from a bus in Cornwall.

If the politicians are struggling to keep their heads and give us reasoned arguments, how can we make sense of it all? How can we as financial professionals and, more importantly, our clients make an informed decision?

There is very little foresight shown by either side, just unfounded scare stories with no factual evidence to support them and I fear there will be more of this to come in the weeks ahead. So, in the run-up to the referendum, I’ll issue a series of blogs that will attempt to add some clarity to the ongoing debate. Because, whatever the outcome of the referendum on 23 June, I do think it has important consequences for the country which could affect clients’ investments over the next few years.

The growing level of anger and mistrust between the two warring factions of the Conservative Party is plain to see. It’s possible that the prime minister and his chancellor are out of step with their grassroots members and this could have lasting repercussions.

It now seems almost impossible for either man to lead the country if ‘leave’ wins. This would mean a leadership change at a time of already great uncertainty. Clearly, such a result would be negative for sterling, gilts or UK equities.

Some have asked me if Cameron would change his mind and stand for a third term if ‘remain’ wins. Again, this seems unlikely and it could be argued that he may now struggle to get through to the third year of this Parliament given the fury he has stirred up among his internal opponents. If this proves to be the case, we could end up with a weak government distracted by internal politics, elevating the chance of policy errors.  Again sovereign debt and the currency would become very volatile.

And herein lies the problem: no-one has articulated a strategy post the vote.

If Brexit happens, then we will need a strong government in place as soon as possible. The Bank of England would have to act decisively – and carefully – in its communications. This has not been its strong suit in recent times!

I suspect the BoE would likely answer a Brexit vote with more quantitative easing, together with tax reductions in the business sector, rather than an interest rate cut which would not help the pound.

If we do get more QE we could see more liquidity pumped into property and corporate bonds which would make the party go on longer, but the resulting hangover could be brutal.

I’ll touch more on this in the next Brexit blog and what positive steps the government could take whether we leave or remain. 

Important legal information

This area of the site is for professional advisers

Please read this page before proceeding, it explains certain legal and regulatory restrictions applicable to the distribution of this information. It is your responsibility to inform yourselves of and to observe all applicable laws and regulations of the relevant jurisdiction.

This section of the website is directed only at investment advisers and other financial intermediaries who are authorised and regulated by the Financial Conduct Authority (FCA).

The information provided in this site is directed at UK investment advisers only and must not be circulated to private clients or to the general public. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

I confirm that I am an investment intermediary authorised and regulated by the Financial Conduct Authority. I have read and understood the legal information and risk warnings below:

Important Information (Terms and Conditions)

The information contained on this site is believed to be accurate at the date of publication but no warranty of accuracy is given and the information is subject to change without notice. Any opinions or estimates included herein constitute a judgement as of the date of publication and are subject to change without notice. Furthermore, no responsibility is accepted for the accuracy of any information contained within sites provided by third parties that may have links to or from our pages.

Rathbone Investment Management Limited ("RIM") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered Office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in England No 01448919.

In accordance with regulations, all electronic communications and telephone calls between Rathbones and its clients are recorded and stored for a minimum period of six months.

The information provided in this site is directed at UK investors only. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

In particular, the information herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in France and the United States of America to or for the benefit of United States persons (being resident in the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof).

In order to comply with money laundering and other regulations, additional documentation for identification purposes may be required.

Rathbones shall have no liability for any data transmission errors such as data loss, damage or alteration of any kind including, but not limited to, any direct, indirect or consequential damage arising out of the use of services provided or referred to in this website.

Past performance should not be seen as an indication of future performance.

The value of investments and the income from them can fall as well as rise and you may not get back the amount originally invested, particularly if your client does not continue with the investment over the longer term.

Changes in the rate of exchange between currencies may cause the value of an investment to go up or down.

Interest rate fluctuations are likely to affect the capital value of investments within bond funds. When long term interest rates rise the capital value of units is likely to fall and vice versa. The effect will be more apparent on funds that invest significantly in long dated securities. The value of capital and income will fluctuate as interest rates and credit ratings of the issuing companies change.

Tax levels and reliefs are those currently applicable and may change and the value of any tax advantage will depend on individual circumstances.

Investing in emerging markets or small companies may be potentially volatile, as these investments are high risk.

The design, text and images are owned, except as expressly stated by members of the Rathbone Group. They may not be copied, transmitted, displayed, performed, distributed, licensed, altered, framed, stored or otherwise used in whole or in part or in any manner without the written consent of Rathbones except to the extent permitted and under the procedures specified in the copyright Designs and Patents Act 1988, as amended and then only with notices of Rathbones' rights.

Rate this page:
No votes yet

We’d love to hear your feedback

Please help us improve and shape our future services and products by taking a short survey.