11/7/2019 11:00:00 PM

Market Watch Episode 36: How the UK Economy is Coping with Brexit Chaos


The UK Brexit faces another delay and yet another vote as Brits head to the polls in December.

But despite another week of high political drama in the British Parliament the odds of an orderly resolution now look better than ever, says Pie Funds chief executive Mike Taylor.

And that should be good news for the British economy.

"We do seem closer to the end," Taylor says. "It feels more likely. Famous last words, but I think everyone is just so fed up with it."

With Parliament at a stalemate - voting to block a no-deal Brexit but not to accept Prime Minister Boris Johnson's negotiated exit, another deadline delay, to January 31, has been granted by the EU.

To try and break the parliamentary deadlock Johnson has called an election for December 12.

"The parties will go to the polls almost like another referendum," Taylor says.

Taylor has been keeping a close eye on the UK economy since setting up a UK and Europe based growth fund in November 2016, in the wake of the Brexit vote.

The apocalyptic scenarios that were predicted by some didn't play out but the ongoing uncertainty has started to slow the UK down, he says.

"In the first period post-Brexit the effect was not too bad. It took a while for people to start to change their investor behaviour. Everyone assumed that a decision would happen relatively quickly.

"But because we haven't found a solution it's meant a lot of the investment has been either cancelled or deferred."

For example head-office projects are down 50 per cent from what they were in 2017 and a third of what they were before the Brexit vote, he says.

Some of the projects that would have been built in the UK have gone to Europe with notable winners in France, Belgium and Spain.

"There are definitely companies with projects out there that have their decisions on hold.

"And you'd expect that if there is an announcement on Brexit , one way or another it will allow people to go ahead with a decision."

Residential house prices have held up reasonably well, bolstered by low interest rates.

The digital economy, largely based out of London, has also held up well, Taylor says.

"London hasn't performed too badly and has basically stayed stable. It is projects and investments outside of London that which has under performed."

Data is now showing manufacturing is off by 35 per cent
and that 15-20 per cent of all investors say investment in the UK is on hold.

Chinese investment is down by 65 per cent.

The stockmarket has held up okay but has been dampened by weak consumer and business sentiment.

GDP growth before Brexit was 2.5 to 3 per cent, it's now 1.5 per cent.

- The MarketWatch video series is produced in association with Pie Funds

Although that has slowed along with the rest of Europe.

Political concern has hit the pound which was worth about US$1.50 before Brexit.

It has fallen to a low of about US$1.20.

"In recent weeks as a deal has started to look more likely it has recovered to about US$1.28," Taylor says.

"Everyone always moves to a worst case scenario.

"But it would appear we're not going to have a no-deal Brexit scenario.

"Whatever is agreed - remain or Johnson's negotiated Brexit - then the UK will be much better off in 2020 either way.

"You would see a release of that pent-up demand, with all those projects that have been put on hold suddenly commencing, we'd a see a tick up in GDP, we'd have some clarity about migration. And a strengthening for the pound."