Brian’s Brainstorm

How Brexit affects your wealth

The purpose of this article is not an attempt to predict the outcome of Brexit negotiations. This is an impossible task because the incompetence of the British establishment continues to amaze. What we can do is analyse how the markets react on various outcomes and how this affects your wealth. The most important price to look in this context is the £/$ exchange rate.

The markets are pretty predictable in this respect, the pound depreciated on the referendum result in 2016, while talk of a “No deal” tends to provoke further selling pressure on sterling. This is because the UK has its own currency the exchange rate acts as a very useful safety valve. The weak pound has made British exporters very competitive and this is one reason unemployment is at its lowest rate for 45 years. If the UK was a member of the euro and its people voted to leave, the straitjacket of the single currency would have resulted in a very severe recession.

The exchange rate also acts as a safety valve on your investments, provided your portfolios are balanced with an appropriate holding in overseas assets.  Let’s look at a simple example how this works. Let’s assume that an investor bought  US shares before the referendum at an exchange rate of £1=$1.50 for £1m or $1.5m.  Now suppose the exchange rate alters to £1=$1.20  3 years later, while the share price hasn’t changed. That £1m worth of share pre referendum would now be worth £1.25m ($1.5m divided by 1.2 (the new exchange rate)).

That’s not the end of the story. Over 70 per cent of revenue generated by FTSE 100 companies are non-sterling earnings. So if the pound falls, the sterling value of these revenues rises. And a virtuous circle then plays out as the weak pound makes UK companies more competitive which boosts their non-sterling revenues even further.

In 2016, some so-called experts from investment banks said that if the UK people voted to leave, sterling would collapse AND the stock market would crash.  The simple arithmetical exercise above explains why this has not happened.

Brian Durrant

Staff Matters

  • Conçerva’s mercurial football team has it’s second ever game this month. The four month gap between fixtures has given our veteran superstars more than enough time to recover and we are hopeful for a second consecutive victory.
  • Mairead Richardson has recently sat and passed her LF1 Life & Pensions foundations exam. This is Mairead’s first ever professional exam and we would like to congratulate her for successfully navigating this first step in the world of financial services.
  • You may recall from a previous newsletter that Mark’s daughter, Ella has been competing in the Underwater Hockey World Championships for Team GB. Her and her teammates managed to reach the semi-finals of the tournament losing out to the eventual champions in a close-fought match. Everyone at Conçerva is extremely proud of her achievements, especially Mark, who watched every match he could in person.

7IM Seminar Announcement

Due to circumstances beyond our control, we regret that we are unable to hold this year’s events with Justin Urquhart-Stewart.

Please keep reading these newsletters for further announcements and developments regarding a new event in 2020.

Statistical Information

Last Month This Month Change
CPI 2.0% 1.7% -0.3%
RPI 2.8% 2.6% -0.2%

UK Consumer Price Inflation

August 2019 September 2019 Change
Base Rate 0.75% 0.75% +0.00%

MPC Meeting – Summary and Minutes