Director's Cut: The UK Departs in T Minus Three Months and Counting

If you were to renegotiate deals with someone responsible for 54.1% of your sales, it would cause some stress. How about renegotiating with your top supplier, responsible for 61.7% of all incoming goods? Well that is just what the world’s fifth largest economy, the UK, decided to do. And, unsurprisingly, it is causing some concerns for both businesses and individuals.

Expect anxieties to increase as we draw closer to the Friday, March 29, 2019, departure date. We will likely see further declines in the FTSE 100 and the pound-to-euro exchange rate unless the terms of divorce are agreed upon quickly. The FTSE has been losing ground over the past few months, with November closing at the lowest level in nearly two years.

As with the US, we do not forecast the British stock market, but we do study the trends. Typically, a sustainable decline in the FTSE 100 ties into a weakening of overall UK Industrial Production. UK Industrial Production is already in a slowing growth trend, and our forecasts call for some mild contraction to occur during 2019. While the Brexit negotiations are not going to be the driving factor of what we expect to be a rather global trend, Brexit negotiations, or the lack thereof, have the potential to make the situation deteriorate faster.

These negotiations are not a zero-sum-game situation. There will be winners, and there will be losers. As is true in every negotiation, it is important to be aware of who needs who more.

The big question is always the same: "How does this impact me, and what do I do about it?" While not all details have been worked out between the UK and the EU, the scope of trade, travel, and security are taking shape. There are a few key things to remember during this transition:

1. The unknown creates volatility in the markets. Reminding yourself of this will help put each passing headline into perspective.
2. There will be a "transition period" from March 29, 2019, to December 31, 2020, that will give individuals and businesses time to prepare and get everything in place. This transition period also has the potential to be extended.
3. While major changes can hinder some businesses, they can also create new opportunities for industries and companies to grow and flourish. The old adage, "Where there's a will, there's a way," comes to mind. If a company was driven to innovate, succeed, and thrive before, they will continue to do so.

Lastly, remember that you can’t change the wind, but you can adjust the sails. As individuals we can’t always change the political climate around us, but we can adjust what we do for ourselves and our businesses. Take control of the situation and ensure you are diversified enough to protect yourself from any potential rough seas ahead.

Jackie Greene
Director of Economics