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Where has the £65bn Brexit cash gone?

Brexit

Outflows sparked by the possibility of Brexit might take longer to return to the UK as more market uncertainties take their toll on investors, experts are predicting.

Some £65bn has been pulled out of the UK in March and April amid growing uncertainty over the EU membership referendum, Bank of England figures show.

The Bank says the money was either taken out of the country or converted into other currencies in the two months to April.

Axa Wealth head of investing Adrian Lowcock believes the money that has left the UK has gone into US markets and expects more outflows in the coming weeks.

Lowcock says: “Much of the flow out of the UK has been linked to the weakness of sterling, which has been more volatile than the UK market, so investors have been buying currencies such as US dollar and Japanese yen which are defensive.”

In March alone £59bn was pulled from UK assets and currency.

A total of £77bn was withdrawn in the half-year to April, according to the BoE.

But Hargreaves Lansdown senior analyst Laith Khalaf says there is not “a tell-tale dent” in sterling or stock or bond price moves over that period, so it is difficult to track the actual direction of cash outflows.

AJ Bell investment director Russ Mould says in March and April sterling did not do “too badly” against the major currencies and lost only “a little ground” against the euro, yen and gold.

In the first week of June UK equity funds saw redemptions for the 12th out of the previous 14 weeks, totalling $2.6bn in outflows, the 10th consecutive outflow over the same period, says Bank of America Merrill Lynch.

Mould says: “It’s unlikely any |money that has exited would dash back in the event of a ‘leave’ vote but the timing would then depend on how trade and political negotiations
develop, as well as any policy response from the Bank of England.”

Lowcock expects money to flow back to the UK “pretty quickly” in a few months but, if the vote is for Brexit, any reinvestment in the UK will be subject to fluctuations.

Mould says a remain vote would soothe nerves but appetite for sterling relative to other options will depend on factors other than just the EU verdict, such as approaching elections in Europe and the US as well as any moves by the US Federal Reserve, the Bank of Japan and the European Central Bank.

He adds the UK economy is still heavily indebted, with high current account, trade and budget deficits and a big imbalance between growth in services, construction and manufacturing.

Mould says: “If housing wobbled, then the UK would be potentially in some difficulty, and the Government is doing its best to keep those plates spinning, with Help to Buy Isas and even the new scheme for intra-family, intra-generational loans.

“This degree of borrowing can only be pushed so far before something has to give and house prices stall or begin to drop simply because mortgages chew up too much of people’s disposable income, even with rock-bottom rates.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. “…currencies such as US dollar and Japanese yen which are defensive.” I’d rather have the Swiss Franc, the Norwegian Kroner or the Singapore $.

    Anyway this is the tip of the iceberg. Just wait till (if) we Brexit. It will make the current exodus look like a tea party. Will you bet against the investment banks and hedge funds not shorting the pound? My guess is that they will and Sterling will sink even further. Against my preferred choice of currencies Sterling had declined by 10% since January.

    Will this force up interest rates. Well it did when Soros was shorting. Only this time, as has been pointed out, we are drowning in debt. So if interest rise we will be in a recession that will make 1929 and 2008 look mild.

    It is irrelevant what either camp says – the markets will dictate.

  2. Short term losses are inevitable for long term gain !

  3. There is NO long term gain here. make no mistake.

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