Until recently I was really excited by the prospect of a post-Brexit UK, recognising that in the short term, as I warned several months ago in this column, the economic road would be bumpy and that inequality was polarising society, writes Nick Leslau, chairman of Prestbury Investments.
Things have moved on fast, much faster than I ever imagined. The economic bumps have transformed into chasms and society’s polar extremes have been laid very bare as seen in the immediate aftermath of the shocking recent Grenfell Tower tragedy. QE-driven ultra-low interest rates have made asset owners much richer and the poor relatively much poorer and we are starting to see just how deep that division is becoming.
I don’t want to rehash the seemingly never ending post-election analysis of what went wrong, but I must vent with a couple of observations as I am very angry.
What commentators, I feel, haven’t fully grasped is the enormity of the impact of so called “Dementia Tax”. It is a fairly radical policy, albeit rooted in sound economic theory, neither properly debated or explained, immediately recanted and then amended, with any change being denied, thereby ensuring the story dragged on in the media for most of the election period.
It wasn’t just the elderly who took immediate fright on this but also the near elderly and, even more importantly, those offspring of the elderly and near elderly who were looking forward to inheriting a little money from their grannies. Why without serious explanation would anyone immediately think that’s a good idea? In one act of intense stupidity significant parts of the electorate lost faith overnight. The PM was not the safe pair of hands we thought but was cold, misguided and politically incompetent. Our leader is no chief executive.
The Labour Party brilliantly courted young voters, swamping social media with such incredibly easy messages to digest, but the incumbents arrogantly never believed anyone would buy them because they would destroy this country economically, but they did. Society’s polarisation was being exposed as fast as the PM’s authority was being unravelled.
Dangerous and economically illiterate
Corbyn himself surely figured he wouldn’t be elected and with two-thirds of his cabinet and much of the Labour press sharpening their knives in preparation for his post-election beheading, he embarked on the giveaway of the century. No student loans, never ending buckets of cash for social care, the NHS, the end of austerity and, of course, nationalisation. Make the rich bleed and look after the poor. It was good old, irresistible Robin Hood Marxism and my goodness it resonated. Overnight the PM and her super smart unelected team handed over the crown to Brother Corbyn, now the most powerful man in Westminster with a shadow cabinet, in my view, comprising the most dangerous, economically illiterate individuals potentially poised to wreak havoc on the UK’s finances.
Our property world cannot be unaffected and I am now concerned for the near and medium-term future of this country.
I am trying to find chinks of light but it’s challenging. The implications for real estate, with the exception of a few pockets of highly defensive income streams and prime property attractive to the overseas buyer for as long as they hang around, will be negative as will it be for business generally. The UK is unsurprisingly becoming increasingly unattractive to investors and the current political instability is, of course, very worrying, bearing in mind just how radical is the ideology of Westminster’s new powerhouse.
A weaker country
Real estate will be protected in the short term by ultra-low interest rates but we cannot avoid the obvious. We will be a weaker country and therefore suffer a weaker property market. Property values have over many decades broadly tracked GDP and you can make your own mind up as to what the next few years are going to deliver in terms of economic growth. Brexit will become a damp squib negotiated by a neutered team and that is not what we needed. I have always wanted a “soft” Brexit and if that is what we achieve, however warped the manner in which it will have come about, then that is possibly one of the positives that will come out of this political mess. However, I still do not put it past the Conservatives to tear themselves to pieces over this and hand power over to a man who makes Michael Foot seem like a moderate.
On another more positive note, out of dysfunctionality can come opportunity. Some will undoubtedly panic and run for the exit – and that might provide some interesting pickings for the courageous.
I am thankful that the market is not burdened with high debt levels and that much of the equity deployed in the past five years is very sticky, but when sentiment goes it does so pretty quickly. There will be no crash, but the rate of decline for all but the best real estate will increase.
I don’t think there will be many reasons to be hanging out the bunting any time soon, other than the very red variety.
