The Brexit effect

[miga]

I don't know about you guys, but I'm very wary of getting into any kind of major house project or large purchase at the moment, and this is a sentiment echoed by colleagues, who are talking about whittling down debt rather than spending. That's exactly what snowballs into a larger slowdown.

[Earl Aelfheah]

I agree. Confidence is a huge part of what happens economically and it's undoubtedly suffered a huge blow as a result of Brexit.

[Lordship 516]

miga Wrote:

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> I don't know about you guys, but I'm very wary of

> getting into any kind of major house project or

> large purchase at the moment, and this is a

> sentiment echoed by colleagues, who are talking

> about whittling down debt rather than spending.

> That's exactly what snowballs into a larger

> slowdown.

Not only you & your friends & colleagues but also most compamies will go risk averse & delay/cancel spending and investment, hitting demand and employment levels.

Bank liquidity could improve but for all the wrong reasons. Balance sheet good, P&L crap. Share prices ?

[Lordship 516]

miga Wrote:

-------------------------------------------------------

> I don't know about you guys, but I'm very wary of

> getting into any kind of major house project or

> large purchase at the moment, and this is a

> sentiment echoed by colleagues, who are talking

> about whittling down debt rather than spending.

> That's exactly what snowballs into a larger

> slowdown.

Not only you & your friends & colleagues but also most companies will go risk averse & delay/cancel spending and investment, hitting demand and employment levels.

Bank liquidity could improve but for all the wrong reasons.

[uncleglen]

All this proves is that everyone is concerned more about how big the cake is- and not how it is shared out.

[Loz]

uncleglen Wrote:

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> All this proves is that everyone is concerned more

> about how big the cake is- and not how it is shared out.

If you have a 1kg cake and you get a 50g slice, are you better off than if you have a 10kg cake and get a 75g slice?

[Earl Aelfheah]

...or, a tiny cake being stamped on by Rupert Murdoch.

[Loz]

rahrahrah Wrote:

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> ...or, a tiny cake being stamped on by Rupert Murdoch.

Ah, but the UG rules say you are not allowed to be concerned about how big the cake is.

[Earl Aelfheah]

Lordship 516 - a poll of 700 plus economists suggests you may be right about possible stagflation. http://www.ft.com/fastft/2016/06/29/uk-inflation-to-breach-2-in-2017-economists/

[Earl Aelfheah]

Lordship 516 Wrote:

> When inflation rises, purchasing power is

> diminished.

> The resultant drop in consumer spending has a

> negative effect on stock and bond prices that will

> be further affected by a resistance to exports.

> Unemployment will rise, for sure.

@Lordship 516 - That all makes sense, expect the bit about resistance to exports, which I don't think I've quite grasped. Would some exports not be boosted at least, by the falling value of the pound?

[Lordship 516]

rahrahrah Wrote:

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> Lordship 516 Wrote:

>

> > When inflation rises, purchasing power is

> > diminished.

> > The resultant drop in consumer spending has a

> > negative effect on stock and bond prices that

> will

> > be further affected by a resistance to exports.

> > Unemployment will rise, for sure.

>

> @Lordship 516 - That all makes sense, expect the

> bit about resistance to exports, which I don't

> think I've quite grasped. Would some exports not

> be boosted at least, by the falling value of the

> pound?

Unless & until we have an agreement with the EU & other treaties in place then there will be a resistance to exports [resistance to imports to other countries] This is an uncertainty factor as well as an actual effect & will affect stocks & bonds.

[Earl Aelfheah]

I think I see what you mean. EU companies may be put off importing goods from the UK due to uncertainty about future trade deals (despite the weaker pound making such goods cheaper at least in the short term)?

[Lordship 516]

rahrahrah Wrote:

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> I think I see what you mean. EU companies may be

> put off importing goods from the UK due to

> uncertainty about future trade deals (despite the

> weaker pound making such goods cheaper at least in

> the short term)?

Yes, as they will need to source an alternative source of supply & they will factor in the future issue of tariffs in their pricing Models as well as the increased customs issues. This will lead them towards hedging their bets, not totally cutting UK supply off but taking product from elsewhere also - this also puts price pressure on the UK supplier. There is also another effect - much of the items that will be priced in ?s will have components within the cost that will be denominated in foreign currencies such as energy which prices will increase. So the goods will not have a simple reduction linked to the reduction in the ?, whereas imports prices will be directly linked to the reduction in the value of the ?.

[Rook]

Lordship wrote: "Yes, as they will need to source an alternative source of supply & they will factor in the future issue of tariffs in their pricing Models as well as the increased customs issues. This will lead them towards hedging their bets, not totally cutting UK supply off but taking product from elsewhere also - this also puts price pressure on the UK supplier"

Lordship I work with large multinationals and many clients within the EU who currently deal with the UK and none of them have even hinted at this. It doesnt make sense on an economic or practical basis. Where did you get it from pls or are you just musing? Thanks

[bsand]

I've just pulled out of putting my house on the market as we wanted to downsize and were going to go with Winkworth's. They are saying that buyers are expecting 5 - 10 % off what they regards as "fair price" and houses under offer have buyers asking for a similar discount. Who knows where this is going but as we can sit it out for the forseeable and are doing that for now. Could regret this 2 years down the line if prices are down 30% or so - truth is nobody knows could easily go the other way.

[Lordship 516]

Hi Rook

Much of my work is with clients across various countries including South America, China & Europe & from both buyers & suppliers. Someetimes they will provide me with parameters & other times they are requesting us to provide likely outcomes. All of the companies are forever looking at alternative sources of supply in normal times & I have a few enquiries from a number of different countries to keep a watching brief an what the consequences of each factor [energy costs, currency, duties, taxes, admin costs, shipping, security of supply etc]. They do this for their own peace of mind. No company will ever disrupt a relationship for notional reasons but they have have this knowledge in reasonable time to protect their interest. Most Chinese money has gone flat for all of Europe at the moment but especially flat for the UK. They won't sell out as they are never jumpy but they will wait to evaluate again at each waypoint in the scenario.

[Lordship 516]

bsand Wrote:

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> I've just pulled out of putting my house on the

> market as we wanted to downsize and were going to

> go with Winkworth's. They are saying that buyers

> are expecting 5 - 10 % off what they regards as

> "fair price" and houses under offer have buyers

> asking for a similar discount. Who knows where

> this is going but as we can sit it out for the

> forseeable and are doing that for now. Could

> regret this 2 years down the line if prices are

> down 30% or so - truth is nobody knows could

> easily go the other way.

Hi bsand

Your decision will probably replicated many thousands of times and also a lot of sellers will refuse offers for some time. It is too soon for anyone to offer any advice as there is not enough data on what unemployment is going to be and we also have to wait to see who the new PM is & who her government will be. The Autumn statement will display a lot but until early next year and it won't be possible to see a way forward probably until after the budget - by that time there ought to be some sort of feedback from the EU & parliament so housing & construction will be in the doldrums.

What you say is the simple truth - no one knows. New house sales were in decline before the referendum anyway so there will possibly be a very flat period for the forseeable future 1 to 2 years [or so - no one knows] That's what political uncertainty does, i'm afraid, & more to come with the induced economic uncertainty.