Beyond Brexit

Brexit triggered volatility in markets, including a sharp depreciation of the British pound and dramatic falls in the share prices of British and European banks.

However, we believe the probability of a major global systemic risk event due to Brexit is low in the short term. We believe the European Central Bank and Bank of England stand ready to provide sufficient liquidity to ensure their banking systems continue to function.

Quantitative easing (QE) could also be redeployed in the United Kingdom (UK) or stepped up in the Eurozone to support sovereign bond markets if needed. The uncertainty and distraction created by Brexit are likely to result in reduced investment, increased savings and lower economic growth in the short term. In response, the Bank of England decided to reduce the cash rate to 0.25 per cent in early August.

It is important to distinguish between the nine nations that are members of only the EU and the 19 nations that are members of both the EU and the Eurozone. Leaving the Eurozone is more problematic than leaving the EU because there is no existing legal process to follow. There are four countries that are outside the EU but are part of the single market as members of the European Free Trade Association (Norway, Iceland, Switzerland and Lichtenstein). We believe it is 50 per cent likely that the UK will proceed to trigger Article 50 and negotiate an agreement to remain in the single market.

Rodney Turner and OBT Financial Group are Authorised Representatives of Lonsdale Financial Group Ltd ABN 76 006 637 225 | AFSL 246934.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change. This information and certain references, where indicated, are taken from sources believed to be accurate and correct. To the extent permitted by the Law, Lonsdale, its representatives, officers and employees accept no liability for any person that relies upon the information contained herein. Information is current at the date of issue and may change.