Friday, 24 June 2016

So the Lemmings have jumped off the cliff

I am not surprised by the result this morning; nor am I too surprised by the crash in the Pound. According to the Brext camp this was not going to happen!

I wonder what else of the warnings made by the remain team will come true? I hope the most serious do not, but suspect that they will. A run on the Pound may well precipitate a rise in interest rates. If, as Standard and Poor have said, the UK's AAA rating is lost, then that too indicates that rates will have to rise. Meanwhile, a 10% drop in the Pound must mean an increase in prices, especially of fuel and imported commodities and food. Likewise, other imported goods will rise in price

So, at last, inflation will start to re-emerge as an economic shadow. For the saver reliant on interest rates to provide an income that may well be no bad thing, but for home owners with big mortgages that is a real shadow on the horizon. If rates rise significantly there is quite a serious risk of a rise in mortgage defaults and a decline in house prices. Maybe such a decline would be a good thing, but the economy is frightfully closely linked to house prices, so I think the chances of us avoiding another recession in the near future are diminishing.

As Sir John Major commented just a couple of days ago, a Brexit vote will mean that the chickens will come home to roost for those in the leave camp who so rubbished Remain's economic concerns. I cannot see how David Cameron can continue as PM, especially given the calls for George Osborne's head. Both Cameron and Osborne subscribed to the same economic predictions and Cameron can hardly sack Osborne and keep his reputation for being a man of principle - blaming the cook when the butler has spiked the curry is not the done thing!

Well, I guess those of us with business interests linked to European legislation had best look for an alternative job. As things stand, I think my company will have to fold in the next 18 months; who in China or India will want my services?

Monday, 13 June 2016

At last a sensible man!

Andrew Tyrie's article in The Times today hit the spot for me. At last there was an analysis that was not filled with the hot air of Brexit or the open goals created by the Remain campaign. It was measured and sensible. Of course Brexit will rubbish it because his conclusion was in favour of  'Remain', but there is no escaping the fact that the Brexit camp have told a pack of lies in all sorts of places; from mis-quoting figures on the UK contribution, to spreading fear about an imminent influx of Turkish immigrants. Brexit talk 'project fear' but I think the same or worse charges can be levelled at them.

Meanwhile, the financial markets are already getting the jitters. The Pound is down to April levels and levels of uncertainty about the UK economy are rising. That means that whatever happens on June 23rd, the economy is being affected by fears of Brexit. We can only speculate what will happen when a concern becomes a reality. A Sterling crash will of course mean that lots of British holidaymakers will pay a lot more for their 'sun, sand and Sangria', but also that perhaps our tourist industry will get a boost and guest house rates will rise so that Brits cannot afford them! A double whammy!

For me, the more worrying issue is the impact of a dip in share prices will have on people's pension schemes. For those in the 55-65 bracket there are good grounds to be very worried. If you have a money purchase scheme expect your investments to yield a much lower return and therefore any pension to be substantially lower. If you are below 40, pile the money in now as there is a chance you will do better than you might otherwise have done (in 25-30 years time).

It does not stop there. We have already seen the impact of a deficit in the pension scheme and its effect on the future of a business. The 'British Steel' situation is salutary, whilst the BHS debacle should send a shockwave through remaining pension schemes with significant deficits and a lack of a decent commitment to a recovery plan. If your scheme is a defined benefits scheme that has not closed, expect it to close to new entrants in the very near future - big holes in such schemes mean that action has to be taken and one start of the process is to close to new entrants.

Of course, to use James Dyson's words I am speaking 'cobblers' if you subscribe to the Brixit argument. Maybe my message is 'project fear'; but I challenge the Brexiteers to resolve a basic problem: almost all economists and commentators expect Brexit to result in a substantial economic shock to the British and possibly the World economy. That will have an impact on current employment, on short-term investment and on the status of pension schemes. By way of an example, I have shares in 'Good Energy' who are floating a rights issue at the moment - do I invest or should I be wary in the face of Brexit and a change in leadership from climate change receptive to climate change deniers? I am wavering but am certain that I will not make any investment at the level I might otherwise have done. My brother goes one stage further and will not invest.

The Brexit camp has brushed over such issues in a most cavalier manner but it cannot surely ignore the economic facts of life when economies shrink: there is less money in the exchequer, less money invested and fewer jobs created. There WILL be a short- to medium-term impact after Brexit and some of that impact WILL have long-term consequences for people approaching their pension. Forget the question of whether the Government pension will continue to be pegged to inflation; private pensions will not be pegged in quite the same way - they are linked to real-time economic performance. We cannot be sure how any future Government will deal with a hole in the budget, but if it is the right wing of the Conservative Party you can bet that they will be prepared to consider what they argue is unthinkable - there will have to be cuts somewhere as they will not raise taxes.

So, my question to the Brexit camp - will you be using the savings from Brexit to supplement those who lose out when their pension pot drops because UK share prices trip up? I'll bet there won't be enough in the kitty after all their rash promises have been fulfilled.