Currency and stock market movements have been well short of some of the more extreme forecasts and the devaluation of the pound can be the UK’s secret weapon, according to risk management consultancy JC Rathbone.
In a note to the market, director James Stretton said: “Today will be volatile and this volatility will doubtless extend into next week. However, we should not be too concerned about the savage mark-down of sterling.
“We have been here before in 1992 and 2008. Indeed a sharply lower pound is the UK’s not-so-secret weapon. Sterling’s collapse after its exit from the ERM set up the economy for a period of spectacular growth and stability; and the Bank of England’s benign neglect of the pound throughout the financial crisis ensured that the great recession was not much deeper.”
He said that the eventual new base of the pound will be eventually be seen as a bargain, and that current low inflationary pressure means fewer problems, on that front.
He said political machinations should go more smoothly than many imagine.
“Ahead of the referendum, German industry was already lobbying its government to treat Britain kindly in the event of a Leave vote. The petulant threats of Jean-Claude Junker should be ignored. ‘Out means out’, he famously said earlier this week. It may well be for him.”
“Just as was the case when the Leave campaign began its surge some three weeks ago, European stock markets are underperforming the FTSE.
“Indeed, while many will be asking how Britain’s position will change outside the EU, this morning it is perhaps more pertinent to ask how the EU’s position will change without Britain as a ‘member state’.
“Certainly if Junker’s job is to remain in existence he will somehow have to avoid further referendums – notably mooted by the Dutch and Italians.”
James Stretton, director at JC Rathbone
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