Is Brexit Good Or Bad For SIPPs?

Is Brexit Good Or Bad For SIPPs?
Papua New Guinea by Julian Cohen. Why?

Hidden amongst the contradictory political rhetoric are three interesting commentaries on the economic case for Brexit to help in your decision making

The Economic Case For Brexit Has Caused Some Of The UK’s Financial Experts A Lot Of Head Scratching And Some Interesting Conclusions

Economists’ Forecasts: Brexit Would Damage Growth

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In a comprehensive poll by the FT of more than 100 leading thinkers including top UK economists, incredibly not one of them believes a vote for Brexit would enhance UK growth in 2016.

Just under one fifth of the voters believed Brexit would make little difference.  And whilst 8 per cent thought the country would benefit from leaving, around three quarters of the experts believed the UK's medium-term outlook would be damaged.

The most common reason cited was the huge uncertainty that would be created from a vote for Brexit.  Not just from companies investing, but also household spending, which would harm growth.

Many fear the consequences for financial markets would be severe.  Sterling is likely to suffer on foreign exchanges, damage could be inflicted on sterling assets and business confidence and investment intentions would likely be negatively affected.

Check out the expert comments in this article on Brexit.

The Economic Impact Of Brexit

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In a report by Capital Economics, commissioned by Woodford Investment Management to examine the economic pros and cons of Brexit, it was concluded that although the impact of Brexit on the British economy is uncertain, it doubts that Britain’s long-term economic outlook hinges on it. Although things have changed a lot since we joined the European Economic Community, there are arguably much more important issues now, such as whether productivity will recover. The shortfall in British productivity relative to its pre-crisis trend is still over 10 per cent, so regaining that lost ground would offset even the most negative of estimates of Brexit on the economy.

Based on assessing the evidence, it concludes the more extreme claims made about the costs and benefits of Brexit for the British economy are wide of the mark and lacking in evidential bases.

Whilst it's plausible Brexit could have a modest negative impact on growth and job creation, it's slightly more plausible the net impacts will be modestly positive.

It suggests there are potential net benefits in the areas of a more tailored immigration policy, the freedom to make trade deals, moderately lower levels of regulation and savings to the public purse. In each of these areas, it does not believe the benefits of Brexit would be huge, but they are likely to be positive.

Costs in terms of financial services, foreign direct investment and impacts on London property markets are more likely to be short-term, and there are longer-term opportunities from Brexit even in these areas.

It surmises it's neither likely any particular region or regions of the country would be more adversely affected by Brexit than the country overall, nor does it find support for the notion that Brexit would benefit some sectors more than others.

Overall, it thinks the United Kingdom’s economic prospects are good whether inside or outside the European Union. Britain has pulled ahead of the European Union in recent years, and it expects that gap to widen over the next few years regardless of whether Brexit occurs.

Read the full report on Brexit.

If You Leave Me Now

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This is an interesting look at the implications for Brexit for the UK economy and markets by Rathbones, a provider of investment management services for individuals, charities and professional advisers.  Its white paper aims to dispel five common “myths” of Brexit, focusing on the following areas:

1. Immigration: The first of these myths is that immigration has held down wages and pushed up unemployment for UK nationals.

2. Trade: The second myth is that UK trade would collapse after leaving the EU.

3. Financials: The third myth is that the Swiss financial services industry has thrived outside the EU, and that this is a model for the UK.

4. Public Finances: The fourth myth is that the UK’s public finances would improve substantially if we leave the EU.

5. Foreign Investment: The fifth myth is that foreign investors will withdraw from the UK if we leave the EU.

The author of the report concludes the referendum result could push the UK in several different directions, making it difficult to forecast the long-term effects on the economy. In an increasingly globalised world, the UK economy should do well if the country can successfully negotiate new treaties of economic integration with higher growth nations. In the short term though, the referendum is unlikely to have a substantial directional impact on financial markets. He expects markets to react to any lack of clarity and associated uncertainty, believing that sterling is likely to suffer the most volatility, suggesting there’s already evidence of currency traders positioning for some extreme moves.

Read the full white paper on Brexit.

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