Difficulties lie ahead for businesses in aftermath of Brexit vote

5 July 2016

The post "Brexit" vote rally in the share market has been surprising for many, following all the doom laden predictions of a crash. However, there is no doubt that there are jitters in the currency markets with Sterling at 15-year low against the dollar. 


Some sectors in the market have fallen dramatically. Shares in low cost airlines, banks, property and recruiters are off some 25%. This morning, the purchasing managers index for the construction industry made sobering reading with its worst level for seven years, plunging from 51.2 in May to 46 on an index where scores below 50 mark contraction.


Markit, which compiles the data with the Chartered Institute of Procurement and Supply, said there was a "steep decline in residential building", which fell into decline for the first time in more than three years, dragging the sector down and raising fears about a post-referendum slowdown.


All in all, the vote has only been less than couple of weeks ago and any effect on businesses or consumers are not showing up in the statistics. The holding back of business investment is a worry for the economy as it was already on a downward trend from the beginning of the year. 


The Governor of the Bank of England, Mark Carney, has indicated that he might reduce interest rates today, announcing some capital lending rules will be relaxed. At the same time Osborne has said he aims to bring down corporation tax to under 15%. These measures will no doubt soften any blow but as long as uncertainty persists, investment will be lower and the economy will suffer in the short term. The fall in Sterling will no doubt help our exporters be more competitive so there will be winners and losers across industries.


If political instability spreads to EU members, then the UK ironically may be seen as safer port in the storm. The Euro crisis is bound to loom its head again.


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