What would Brexit mean for ex­pats?

David Hughes, Re­gional Di­rec­tor at deVere Acuma, looks at what a UK exit from the Euro­pean Union would mean for ex­pats

7 Days in Dubai - - FRONT PAGE -

On June 23 Bri­tain will de­cide whether to re­main in the Euro­pean Union (EU) or choose to leave. A vote to leave is likely to have ram­i­fi­ca­tions on global cap­i­tal mar­kets, di­rectly af­fect­ing investors’ sav­ings. UK ex­pats, who tend to have most ex­po­sure to ster­ling and UK as­sets, will be most af­fected.

Let’s first dis­il­lu­sion our­selves that Brexit will make the UK a more pros­per­ous coun­try, and so in­crease the value of ster­ling and UK as­sets, from equities to res­i­den­tial prop­erty. It won’t.

Re­gain­ing sovereignty over immigration, and many ar­eas of law such as health and safety and copy­right pro­tec­tion, will not turn the UK into an eco­nomic dy­namo.

It will sim­ply lead to new, do­mes­tic law be­ing in­tro­duced, with the un­der­ly­ing prob­lems (such as an over­con­cen­tra­tion of eco­nomic ac­tiv­ity in the South East of Eng­land, and in­fe­rior in­fra­struc­ture) still lim­it­ing eco­nomic growth. Any lim­its on immigration will raise wages, but weak pro­duc­tiv­ity growth means that busi­nesses will pass these onto the con­sumer, re­sult­ing in de­creased stan­dards of liv­ing.

WHAT ABOUT YOUR SAV­INGS? The near-term im­pact on Brexit for savers will be in two forms. First, ster­ling is likely to weaken sharply due to the un­cer­tainty of po­lit­i­cal and eco­nomic pol­icy ahead. Ar­guably for some time the cur­rency has been punch­ing above its weight, given the large trade and in­vest­ment deficits that to­gether have cre­ated a record cur­rent ac­count deficit of over 7 per cent of GDP. It has been pro­tected by rel­a­tively strong eco­nomic growth, but this could fall sharply if in­ward and do­mes­tic in­vest­ment, and con­sumer spend­ing, dry up due to un­cer­tainty.

Few econ­o­mists wish to give pre­cise fore­casts, but Gold­man Sachs have pre­dicted a 20 per cent fall in ster­ling against the dol­lar in the event of Brexit.

While large blue chip UK com­pa­nies will have some pro­tec­tion from a weaker UK econ­omy due to ex­port earn­ings, do­mes­tic fo­cused mid and small cap com­pa­nies are vul­ner­a­ble and are likely to un­der­per­form on the FTSE in­dex of blue chip stocks.

PROP­ERTY

UK prop­erty is also likely to suf­fer from Brexit. Not only will curbs on immigration re­duce de­mand fore­casts, but mort­gage costs are likely to rise as ster­ling volatil­ity and weak­ness push up the costs of in­ter-bank lend­ing rates. This will feed through into higher lend­ing rates, as mort­gage providers re­coup the in­creased cost of their fund­ing.

Brexit comes at a bad time for the prop­erty mar­ket, with the mar­ket ap­pear­ing to have slowed in re­cent months due to a com­bi­na­tion of new reg­u­la­tion aimed at lim­it­ing buy-to-let, and high prices hav­ing priced out de­mand. WHAT IT WILL MEAN GLOB­ALLY

Brexit will have in­ter­na­tional ram­i­fi­ca­tions. The US Fed has made it clear that a vote by Bri­tain to leave the EU will in­flu­ence the tim­ing of the next rate hike. It fears the shock of Brexit will lead to weak­ness in both the UK and Euro­pean economies, as trade flows shrink be­tween the two. There­fore a Brexit may lead to a post­pone­ment of the next Fed rate hike.

Fur­ther­more, the US shares the fears of Ger­man Chan­cel­lor An­gela Merkel, that Brexit will en­cour­age other sep­a­ratist move­ments within the EU, mak­ing the union more frac­tious and harder to re­form. This may dam­age the euro.

Greater, not less, po­lit­i­cal and fis­cal union is needed to save the euro. This will en­able trans­fers from north to south Europe to be made, to help sta­bilise and grow the south­ern economies. In re­turn the north will de­mand some de­gree of po­lit­i­cal con­trol on how those funds are spent, and they will de­mand deep struc­tural re­forms that will help im­prove pro­duc­tiv­ity growth. These can only be done with ‘more Europe’.

Investors seek­ing pro­tec­tion from a vote to leave the EU should seek pro­tec­tion in USbased as­sets, and the US dol­lar.

HAVE YOUR SAY Are you vot­ing in or out? Tweet us @7DAYSUAE or email news@7days.ae

FIND OUT MORE ABOUT BREXIT deVere Acuma (part of the deVere Group) will be host­ing a Brexit Sem­i­nar to­mor­row at the Ad­dress Ho­tel - Dubai Ma­rina. Places are lim­ited, send your RSVP to dubai@de­v­ereacuma.com

STAY OR GO: The Bri­tish have a big de­ci­sion to make on June 23

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