August saw extraordinary action by the Bank of England (BoE) to support the UK economy following Brexit, with base rates cut to an all-time low of 0.25% and the Bank’s QE programme reopened.
The rally has also partially occurred because Brexit has become something of a short-term non-event and it’s looking increasingly likely that the beginning of negotiations is well down the road.
However, there seems to be a degree of complacency concerning the UK economy and we must bear in mind that it is too early for adverse post-Brexit sentiment to show up in most economic data. There is, therefore, the potential for a
few nasty economic surprises in the months ahead.
We also have a sense of disquiet that Quantitative Easing (QE) and central-bank monetary policy has done little to boost the real economy – to quote Jimi Hendrix, ‘castles made of sand fall into the sea eventually’.
In the US, the election is a major source of concern. Donald Trump’s economic policies are unknown and also, therefore, the implications for the economy and the stock market should he be elected. Hillary Clinton is by far the markets’ choice, as her views are well publicised.
It will probably be October before we can measure how badly consumer and business confidence has been affected by Brexit. It is likely that the UK government’s Autumn Statement will be the time for the announcement of more shock-and-awe tactics.
The world is a very uncertain place at the moment. The old market saying ‘sell in May and come back on St Leger Day’ has not served UK equity investors well so far this year. Whatever the events of the next few months, there is
virtue in continuing to monitor developments closely.
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