Four Factors to Consider in the Brexit Exit | Lord Abbett
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Economic Insights

As a cultural event, Brexit marked a new zeitgeist in a number of developing economies. Here, a look at medium-term risks in the new, post-Brexit era.

Read time: 1 minute

As the start of the new year brought an official end to Brexit, we acknowledge that, from an investing standpoint, Brexit was never a reason to be overly fearful in our view. But, there are some medium-term risk factors to consider as we move forward.

First: Productivity. In our view, the new trading regime for Britain must contend with the United Kingdom’s poor manufacturing track record as compared to the whole of Europe. The COVID crisis does obscure some of the data, and we believe revisions are likely to be large, but the UK has lagged Europe for some time and is still behind.

 

Figure 1. Manufacturing Productivity from 2012

A look at productivity in France, Germany, Italy, Spain and the United Kingdom by quarter

Source: Haver Analytics data, 4/1/2011 through 4/1/2020, indexed to 1 in 2012. Manufacturing productivity is seasonally adjusted real gross value-added for industry divided by seasonally adjusted employment in industry. For illustrative purposes only.

 

Next: Scotland. Although the UK government will try to hold back another referendum for decades (until the 2050s), the Scottish parliament will try for another vote on independence. In our view, this entails some thorny politics for the EU: We believe it must embrace Scotland while also being cognizant of existing European independence movements. Among them: Catalonia, who will be closely watching how the EU treats Scotland.

Third: Services. The trade agreement largely threw financial and consulting services under the bus, which we believe will likely diminish the UK’s role as a financial center over time and boost financial centers within the EU. At the same time, we saw some important agreements on digital services, which may be a strength for the UK going forward.

Finally, we look to Northern Ireland. Both sides worked to effectively keep the peace. While all of Ireland will remain in the EU customs regime and there will be no border, the UK will collect customs on behalf of the EU via checkpoints on the Irish Sea.

So do we think Britain can now more fully embrace the Fourth Industrial Revolution? We believe what will be key – and is easier said than done – is deftly marshalling its research universities and public-private partnerships to take the next step and invest in future industries.

 

Forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

This article may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education.  No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as Lord, Abbett & Co LLC (and its affiliates, “Lord Abbett”) is not undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity with respect to the materials presented herein.   If you are an individual retirement investor, contact your financial advisor or other non-Lord Abbett fiduciary about whether any given investment idea, strategy, product, or service described herein may be appropriate for your circumstances.

The opinions in the preceding commentary are as of the date of publication and are subject to change. Additionally, the opinions may not represent the opinions of the firm as a whole. The document is not intended for use as forecast, research or investment advice concerning any particular investment or the markets in general, and it is not intended to be legal advice or tax advice. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information.

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