Brexit – what happened and what didn’t happen
EU referendum (52%/48% leave/remain)
Vote to invoke Article 50 (80%/20% for/against). Jeremy Corbyn support
General election (Theresa May loses 13 seats 42.4% or 9 seats short of
Draft Withdrawal Agreement rejected three times 432/202; 391/242;
Theresa May resigns/Boris Johnson becomes PM
Revised deal agreed with EU. Withdrawal Agreement Bill legislation approved at second reading, but timetable not approved. Macron? The saviour… unfortunately not! Another extension…
Brexit economic impacts evident, but not decisive…
In 2016, I resisted Project Fear, but at the last moment my resolve weakened, and I fell in line with the Bank of England guidance based on econometric models. Lack of integrity? Probably more, lack of confidence in my own perceptions. After the vote to leave there was no financial calamity, certainly nothing in the order of the Great Recession. In fact, there was no plunge into recession. In commercial property there was fund redemption pressure, which meant that the bold had an opportunity to buy some fairly tasty assets at a substantial discount. If you were a cross border investor, it looked even better because of a 15% devaluation of sterling. In fact, the sterling devaluation generated great support for the UK economy in general and commercial property in particular. Some argue that consolidation of London as a new tech centre was linked to sterling. Rents in London might seem high to a domestic operator, but foreign operators did not seem that put off. In contrast, sterling did not really support the residential market, either the high end or the low end. Residential has also not been impacted much by Brexit. The key driver was a series of regulatory reforms begun as early as 2012 when George Osborne began tightening up on tax breaks, very decisive was the tightening up on non-dom status and cooling of leveraged buy-to-let investment, not to mention more recent unfortunate tinkering with stamp duty.
Demographic forces look far more decisive…
In short, Brexit really only impacted the financial economy. The real supply side economy (domestic demand) seemed unaffected, and this was especially apparent in the UK regions outside of London. Why should this be so? It all has to do with demographics. The UK is the only large European economy with both a growing population and a growing working aged population. France has only marginal working aged population growth and the rest of Europe is already experiencing significant labour shortages. This is why the UK is forecast to outperform the Eurozone economically over the next five years. In fact, UK performance is more in line with the Anglosphere (Canada, Ireland, US and UK) economies who share similar demographic trajectories. In this context, it is temping to argue that Brexit is only of marginal impact, that any real threat has more to do with immigration policies. The good news is that the Home Office is already reevaluating policies to make allowances for sectors such as agriculture, construction, distribution, healthcare and hotels that depend on foreign labour.
1. An election of course with a likelihood of another hung parliament? Another referendum? That seems a formula for more grief. The good news is that at the moment a deal looks more likely than an acrimonious disorganised departure. But that could change…
2. A shift to fiscal spending and housing market support looks very likely, not just for political reasons, but for economic reasons. UK monetary policy has come to the end of the road. New stimulus will need to come from government. This bodes well for property and especially the housing market.
3. Corbyn may not be as big a risk to the housing market as his rhetoric might suggest. Despite various position statements, Labour does not yet have a coherent policy that has support across the party. Nevertheless, some of the sound bites are worrying. However, a Corbyn government looks unlikely.
Walter will be attending the JAI-UTB Champagne reception at MIPIM 2020