The Referendum Might Be Over – But The Work Is Not!


Although the Union has been affirmed, the constitutional changes have not. This is not going to be quite so straightforward. It’s not just about increased powers for Scotland, but rather a far broader reform of the UK’s mostly unwritten constitution. The old issue of Scottish MPs voting on English issues (and vice-versa) will have to be addressed and in doing so we may find ourselves moving towards a more federalised structure of the four nations. Even if these issues are addressed any time soon, we then have other concerns to look at. Next year will see a long run up to the election (7th May 2015). This election is going to be fascinating as frankly anything could happen.

First you will have the battle between the main two parties. Then the ability of the Liberal Democrats to retain as much as they can, and then the entire mechanism will be thrown into doubt by the UKIP effect not so much in winning seats as just drawing votes away from those with thinning majorities.

Then there is the UK’s inability to make a firm decision about membership of the EU. Every day that goes by just provides another excuse for overseas investors not to decide to invest in the UK. Until the question of whether we commit to be within or without the EU, then multinationals will be suspicious of investing in the UK. The result is inevitably going to be a lack of confidence in the UK economy and Sterling. As investors we must think hard about the value of UK government debt (Gilts), not that the UK is about to go bust, but whether confidence seeps investors and supporting value away. Then for equities, it’s not so much the multinational FTSE100 behemoths that will be so affected, in fact their overseas earnings will be flattered by a weaker sterling, but rather those more domestically focused businesses which attract less interest.

But is this all bad? So if sterling does weaken, that can be a boon for exporters and the rising price of imports might actually help inflation not be so affected by the disinflationary drain we are seeing within the Euro zone. For us as investors, it looks as though overseas investing may well be more appealing, not just over in the States but also out in the still dynamic nations of Asia.

Exert from Justin Urquhart Stewart, 23.9.14,