The UK: a case of leaving port without a destination?

The UK: a case of leaving port without a destination?

The European Union was not perfect before the UK voted to leave and it will never be. Even if the aim is economic, security or welfare, the EUis a political union, built by politicians and run by politicians. And who expects a political world short of hiccups?

The introduction leads to a simple explanation as to why the British may have decided to vote No; the ‘Remain’ campaign focused mainly on the economics of the argument while the ‘Leave’ side went for the political argument.

While ‘Remain’ highlighted lower economic growth as their main argument not to vote leave, the ‘Leave’ argued against immigration and flaunted their British pride. It was like one side saying that the British were strong and they can do it alone, the other side argued that Britain needed the EU to maintain its living standard. Do we need hindsight to determine with confidence which argument would attract the most votes?

While the short-term is just that, the short-term, financial markets have bashed the UK economy since the vote. The sterling, which is probably the most reliable indicator of UK economic expectations, fell 17 per cent since June.

What does this mean? The average investor wants to make money. The sterling pullback means that the average investor is now expecting the UK to under-perform going forward.
The sterling pullback means that the average investor is now expecting the UK to under-perform going forward

Thus they have started pulling out sterling denominated financial assets.

Meanwhile, British exporters will see an increase in their profits, but the common people will mainly see an increase in product prices, and their savings slashed 17 percent relative to their EU counterparts.

How does the argument of migration fit into this? The new British prime minister appears to be taking a hard stance on this subject even if historically, countries that have embraced immigration have been the most successful.

One can mention the United States, which is a country made up of so many immigrants; the United Kingdom, which until this year had one of the most immigration-friendly political systems worldwide which focused on education and training; Germany, which since the devastation of the two world wars has embraced diversity and has attracted millions of immigrants from the East; and even Malta which today is dependent on migrants to sustain economic growth.

And what is so important about the single market? The single market permits anyone to set up shop in one country and to sell his products or services across Europe without barriers. But for this concept to be viable the rules in each country have to be the same.

That is why the Maltese government is not permitted to subsidise Air Malta anymore. A subsidy to Air Malta would be unfair for all the other European carriers that do not receive the cash.

It has to be the same for the UK. If it wants to stay in the single market, they have to play by the exact same rules that bind Maltese and EU firms. And, it has to be said, that the UK was highly influential in the design and implementation of these rules.

When will the sterling recover? The UK first has to get a plan together. To date it is not yet clear whether the UK wants a ‘hard’ or a ‘soft’ Brexit. From my point of view, neither is it clear to the British prime minister.

She seems willing to sacrifice economic percentages for popular points, but cannot get to grip with the massive punishment financial markets may inflict. A plan will help re-inject some certainty, whatever that may be. Winds are useless when you have no destination.

A final point to ponder is whether the vote does in fact represent a ‘hard’ Brexit vote. Fifty three percent voted in favour of leaving the EU; does this percentage justify a hard Brexit stance? I am shocked why all MPs are now expected to support Brexit following the vote ‘in the name of democracy’.

A democracy implies that everyone gets to voice his opinion, even the losers. There is nothing wrong if an MP or a party still speaks in favour of the EU because 46 per cent of voters still want to remain in the EU. Winning a vote and expecting everybody to shut up is not the equivalent.

UK negotiators should keep in mind that a win in the referendum got them to the table; but a win for the UK requires listening to the 46 per cent that voted stay.

This article was issued by Antoine Briffa, Investment Manager at Calamatta Cuschieri. For more information visit, The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.


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