As we enter the final quarter of 2016 all financial talk remains firmly Brexit related with the web of stories becoming increasing more tangled as each news day passes. Generally commentators would agree that the UK economy has come through the past three months in surprisingly good condition with initial concerns regarding immediate recession being unfounded as the UK came to terms with what is on the horizon.
Theresa May’s announcement that Article 50 will commence at the end of March 2017 provided clarity on when the exit will commence though it gave little indication of what we can expect when we leave.
May’s setting of the stopwatch was met with harsh comments from The European Council president Donald Tusk, who will run the negotiations for Brussels, warning that the upcoming divorce talks will be “painful” and if the UK decides to leave the European Union it will not offer London any softer terms than a potentially damaging "Hard Brexit”.
Add into the mix the so called ‘people’s challenge’ being brought by Investment Fund manager Gina Miller claiming that Mrs May had no legal power to start the process to leave the European Union without the prior authorisation of Parliament and you can see that the challenges for the government will be significant for the foreseeable future.
Right now it seems that only one thing is certain about the UK’s economic future as we move towards negotiating our way out of the EU; it’s going to be an uncertain time …and there’s nothing like a bit of political and economic uncertainty to spark a selloff in the British pound.
As sterling lingers at a 30-year low it is clear that the UK extricating itself from EU has the potential to significantly disrupt the markets and the UK populous are realising that it won’t just be the moneymen, bankers and politicians who’ll feel the effects.
Tesco and Unilever’s much publicised row last week, that resulted in top Unilever brands being temporarily pulled from the grocery giant’s shelves, has given consumers a taste of the effect that a significantly weakened pound can have on their daily lives and unless the pound strengthens there’ll be further shocks in January when it comes to booking the much loved annual foreign holiday.
That said the are those who’ll win due to the weak pound; many of the companies on the FTSE 100 get their earnings abroad so are seeing nice boosts to their share prices at the expense of suffering sterling. Foreign visitors are also reaping the benefits and cross border trade is up significantly post Brexit with towns like Newry making hay.
From an investment perspective the main by-product of the ongoing uncertainty created by Brexit is increased risk, and risk, as any investor will tell you, is intrinsically linked to reward.
As transactional activity returns to NI after the pre and post Brexit led lull, the appetite for higher quality assets, when priced to reflect ongoing risks, remains strong despite the continuing uncertainty.
Undoubtedly caution prevails due to underlying concerns about the strength of the economy but for those investing from beyond the UK the present weakness of sterling offers a discount over comparative product in their native markets.
Add in the fact that NI has the only UK/EU land border, demand is outstripping supply in the Retail and Office sectors plus rents are on the rise and the province becomes a very promising investment location.
The purchase of Damolly Retail Park in Newry this month shows that investors are still in the market, looking for the right product at the right price, regardless of Brexit.
The big question that they’ll be asking is how low will the pound go, and though many things determine a currency’s rise and fall, until we have some certainty around our terms of exit and future trading landscape with the EU it is difficult to foresee any material recovery leaving a window of opportunity.