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The Brexit Recession is coming watch

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    Nobody had prepared for the the Brexit vote. Companies in their budgets had not accounted for it.

    Some time has passed now and companies are changing their budgets. They are planning to hold back on investment projects and get their cost base down by making redundancies. Other areas of expenditure such as rent and business to business contracts (such as IT servicing arrangements) are much less flexible as the contracts are often agreed to over a number of years so can't be cancelled as quickly as jobs.

    Sentiment at the moment is that there is little to be gained from Brexit and that it is now survival of the fittest. This means controlling working capital by delaying paying bills, by giving discounts to customers to pay early and selling off inventory to get the cash balance up.

    We are currently in a state where the myopic consumer is giving a false impression that the economy is okay. The recession is going to come from business to business transactions drying up.
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    Recession and slowdown are two differing things. I buy the argument for a significant slowdown because business investment will definitely turn negative until 2020 however we also saw negative business investment across the 10-13 period when the economy still grew. I'm less sold on mass redundancy or the picture you paint regarding business transactions because i don't think firms are quite that fickle.

    What we'll see across 2017 and 2018 is a slow leak before decisions for the long term are made in 2019 following review of what the post-Brexit picture will look like. It may be bad, it may not.

    At any rate, the treasuries worst case scenario suggested a decline in GDP of 1.5% across 2017-2018 and that is what i priced into my vote so i'll be holding firm and indeed i'd even say that things are better than i expected. In the long term the report suggested that growth would return to normal with only slightly weaker performance than had we not left (2.2 vs 2.5), it is the hope of those of us that voted Brexit that this will be rectified through exploiting opportunities.

    ..

    Interestingly i recall you used to hate the EU, interesting turnaround if you voted to Remain.
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    (Original post by Rakas21)
    Recession and slowdown are two differing things. I buy the argument for a significant slowdown because business investment will definitely turn negative until 2020 however we also saw negative business investment across the 10-13 period when the economy still grew. I'm less sold on mass redundancy or the picture you paint regarding business transactions because i don't think firms are quite that fickle.

    What we'll see across 2017 and 2018 is a slow leak before decisions for the long term are made in 2019 following review of what the post-Brexit picture will look like. It may be bad, it may not.

    At any rate, the treasuries worst case scenario suggested a decline in GDP of 1.5% across 2017-2018 and that is what i priced into my vote so i'll be holding firm and indeed i'd even say that things are better than i expected. In the long term the report suggested that growth would return to normal with only slightly weaker performance than had we not left (2.2 vs 2.5), it is the hope of those of us that voted Brexit that this will be rectified through exploiting opportunities.

    ..

    Interestingly i recall you used to hate the EU, interesting turnaround if you voted to Remain.
    A recession is defined as 2 consecutive periods of negative growth. That is the picture I'm painting. We won't experience something like the banking crisis of 2008 where output fell by an enormous 10% but it will be a slow burn.

    All things being left equal I would expect for the next couple of years of negative growth of 1%. However this could be changed if the chancellor decides on some kind of expansionary fiscal policy. In my opinion he should take significant action as soon as possible to move business sentiment towards a more positive picture.

    The Treasury and BoE have forcasts of 1.5% growth (interestingly in the last month they have materially lowered long term growth expectations). I attended this month's BoE briefing and when they talked about their analysis I don't think they had appreciated that companies have now got around to rebudgeting and that is why I'm estimating lower growth than they suggest.

    And yes, I would have considered myself a eurosceptic. My default position changed during the Scottish referendum where I was against independence because I realised how difficult the negotiations would be and that all parties would lose. I applied exactly the same logic to why I was against leaving the EU. The negotiations are unbelievably complex and nobody has a clue what they are doing.

    Once the campaigning got a proper I moved sharply towards remain as I realised that the leave campaign was peddling a message of hate and mis-information and was backed by the Kremlin.



    I actually spoke to Gisela Stuart (Chairman of the leave campaign and Labour MP) yesterday. She said the meeting was the most unpleasant experience of her life and she walked out. The meeting was actually remarkably cordial (it was mainly a bunch of fuddy duddy left wing wusses) - but she absolutely refused to discuss international politics and what we are going to do in the future. She just wanted to talk about domestic issues like social care and the NHS.

    When I challenged her on the economy explaining how companies budgets are changing she responded with "are you an economist?" and "did you see the 2008 crisis coming" - rather than explaining how the economy will benefit. And when challenged on the value of the pound she just said it was over valued anyway.

    It is partly the lack of coherence from Brexiters - who are now in charge - which is influencing sentiment because business people don't trust the government to make sensible decisions.
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    (Original post by Classical Liberal)
    Nobody had prepared for the the Brexit vote. Companies in their budgets had not accounted for it.

    Some time has passed now and companies are changing their budgets. They are planning to hold back on investment projects and get their cost base down by making redundancies. Other areas of expenditure such as rent and business to business contracts (such as IT servicing arrangements) are much less flexible as the contracts are often agreed to over a number of years so can't be cancelled as quickly as jobs.

    Sentiment at the moment is that there is little to be gained from Brexit and that it is now survival of the fittest. This means controlling working capital by delaying paying bills, by giving discounts to customers to pay early and selling off inventory to get the cash balance up.

    We are currently in a state where the myopic consumer is giving a false impression that the economy is okay. The recession is going to come from business to business transactions drying up.
    So whats gonna happen to house prices then?
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    (Original post by interact)
    So whats gonna happen to house prices then?
    From what I can understand at the moment property prices are being kept up by three main factors.

    One is the devaluation of the pound which has stimulated a good deal of foreign acquisitions of UK property from people from India, China, Hong Kong, America etc.

    The second is that at the moment interest rates are at rock bottom and the banks are still lending so it is possible to purchase a house by getting a mortgage on decent terms.

    The third - which is more troubling - is that the supply of houses coming on the the market has slowed since Brexit. Part of the explanation for this is that there was a stamp duty rise earlier in the year which brought forward transactions to avoid the tax. However it is starting to look like people aren't willing to sell - probably because they aren't currently interested in moving in to a more expensive house because they are anxious about the economy.

    So although house prices are stable - and therefore bank's balance sheets are stable - there isn't much transaction activity which suggests the market is fragile. There is going to be inflation coming through next year because of the devaluation of the pound and the BoE (assuming it maintains its independence) will raise rates to counteract this after a period of around 4% inflation. The litmus test for the UK property market will be when the BoE does raise rates.
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    (Original post by Classical Liberal)
    From what I can understand at the moment property prices are being kept up by three main factors.

    One is the devaluation of the pound which has stimulated a good deal of foreign acquisitions of UK property from people from India, China, Hong Kong, America etc.

    The second is that at the moment interest rates are at rock bottom and the banks are still lending so it is possible to purchase a house by getting a mortgage on decent terms.

    The third - which is more troubling - is that the supply of houses coming on the the market has slowed since Brexit. Part of the explanation for this is that there was a stamp duty rise earlier in the year which brought forward transactions to avoid the tax. However it is starting to look like people aren't willing to sell - probably because they aren't currently interested in moving in to a more expensive house because they are anxious about the economy.

    So although house prices are stable - and therefore bank's balance sheets are stable - there isn't much transaction activity which suggests the market is fragile. There is going to be inflation coming through next year because of the devaluation of the pound and the BoE (assuming it maintains its independence) will raise rates to counteract this after a period of around 4% inflation. The litmus test for the UK property market will be when the BoE does raise rates.
    I would also add that phase 2 of Help To Buy is still ongoing until the end of the year and that is inflating the credit supply. We could see a relaxation in mortgage credit (especially from the banks which are less keen on government lending initiatives like Barclays) which may also add to less inflationary pressure (in the housing market) during 2017 onward.

    Regarding interest rates i suspect that although government won't force the BOE to do so, the stance coming from Downing Street will at least mean that further rounds of QE and that horrid corporate bond buying (talk about being up the rectum of big business) will at least end. I suspect we won't see interest rates rise for some time though, possibly not until late 2018 when we will know the final details of Brexit.

    Per your earlier post i don't want to see significant borrowing (as in an annual rise) however i would like to see increased capital spending so i do somewhat agree with you fiscally. The question will be where Hammond gets the money from if he does not increase the deficit and whether he will simply pile up a load more unfunded liabilities by sticking a government guarantee on a bunch of private sector projects.

    Needless to say, i have Wednesday the 23rd booked off.
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    (Original post by Classical Liberal)
    Nobody had prepared for the the Brexit vote. Companies in their budgets had not accounted for it.

    Some time has passed now and companies are changing their budgets. They are planning to hold back on investment projects and get their cost base down by making redundancies. Other areas of expenditure such as rent and business to business contracts (such as IT servicing arrangements) are much less flexible as the contracts are often agreed to over a number of years so can't be cancelled as quickly as jobs.

    Sentiment at the moment is that there is little to be gained from Brexit and that it is now survival of the fittest. This means controlling working capital by delaying paying bills, by giving discounts to customers to pay early and selling off inventory to get the cash balance up.

    We are currently in a state where the myopic consumer is giving a false impression that the economy is okay. The recession is going to come from business to business transactions drying up.
    I had £10 on brexit at the Start of February with the breakdown of our country it was quite obvious we would leave.
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    (Original post by TheBirdhaslanded)
    I had £10 on brexit at the Start of February with the breakdown of our country it was quite obvious we would leave.
    What odds?

    I put £10 on the weekend before. Leave had led in the telephone polls before Cox died and i thought that at the ballot box that emotion would go away. My £10 only got me a little over £20 profit though.
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    (Original post by Rakas21)
    What odds?

    I put £10 on the weekend before. Leave had led in the telephone polls before Cox died and i thought that at the ballot box that emotion would go away. My £10 only got me a little over £20 profit though.
    3.5/1. Only made £25 profit
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    The night before the vote I could have got enhanced odds of 10/1. Was gutted.
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    After Trump's win pound/euro went up from 1.12 to 1.16
    I thought oh ok Americans are afraid and they're investing/saving some money in pounds ( I expected that)
    However dollar/euro went up as well from 0.90 to 0.92 .
    WTF? So once trump won people thought ok lets invest in Britain and states ??

    Tbh i really don't know how these things work , please explain (if you know).
 
 
 
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