What Brexit Day means for UK investors

Three-and-a-half years after the referendum, Brexit happens today, but what impact will investors feel? 

Today is a hugely significant day for Britain. When the clock strikes 11 tonight, 47-years after we joined the European bloc, our relationship with Brussels changes forever, but how significant is it for investors? 

Depending on your political view, Brexit is either cause for celebration, or it is an economic catastrophe in the making, for both sides. We won’t know which for years, but we will get a very good indicator as trade negotiations, likely to begin in March, continue through the so-called transition period and conclude on 31 December 2020. 

For the next 11 months, it is unlikely many of us will notice much difference. We won’t be EU citizens, but the sun will rise, the birds will sing, and we will continue to follow EU rules and trade with Europe as we have done since 1973 as the European Economic Community (EEC), then the European Union (EU) from 1993.

In terms of share price reaction to our departure, there is unlikely to be any. The major stock market move occurred when Boris Johnson led the Conservative Party to a large majority at the General Election on 12th December. This not only removed the threat of a Jeremy Corbyn government, which might have had negative consequences for utilities and other listed companies, but also brought certainty three-and-a-half years after the EU referendum voted Leave.

Many stocks perceived to be beneficiaries of the election outcome, particularly domestic businesses like housebuilders, utilities and service companies, have seen share prices soar 20% or more. 

And 31 January 2020 is primarily symbolic. Parliament has already approved the Brexit bill, and Boris Johnson signed the Brexit Withdrawal Agreement a week ago, which was then ratified by MEPs on Wednesday. 

Focus for investors now is the process of agreeing a new trade deal with Europe fit to last another 40 years. Failing to do so will have serious repercussions for British business, and that end-of-year deadline already looks optimistic. It may be that we again find ourselves talking about a Brexit cliff edge, much as we did ahead of the original 29th March 2019 deadline, then again on 12th April last year and finally on 31st October.  

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Don’t expect much detail until the autumn. Again, the market won’t necessarily like the uncertainty and rumour and conjecture, but investors might benefit from a number of positives through 2020, not least the new government’s first Budget on 11 March. 

Chancellor Sajid Javid is already building this up following big promises on spending made in the Conservative Party election manifesto. 

“With this Budget we will unleash Britain’s potential – uniting our great country, opening a new chapter for our economy and ushering in a decade of renewal,” he says. Delivering “world-class public services” will cost money; so will better hospitals, more police officers and ambitious tax promises. 

UK companies will be clear beneficiaries of the extra work and resulting boost to profits. However, only a sensible trade deal with the EU, not a short-term fix, will sustain UK growth for another 40 years.