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I don’t know, but sterling fell to $1.23 this morning. It’s been a steep decline for the UK currency – nearly six per cent since Prime Minister Theresa May outlined her plans to pursue a ‘hard Brexit’ and 19 per cent since the referendum result. Sterling is now trading at €1.11 and at some airports you’ll get less than €1 back for your pound.

I’m not sure this is what most people who voted to leave had in mind, although we’re now told by the likes of Iain Duncan Smith that volatility is inevitable. Nice of him to have mentioned that before the referendum.

Last week, the flash crash in sterling, brought on perhaps by the bellicose talk at the Tory conference, dropped its value further. Many analysts expected it to stay at that low so, whether it was an algorithm or a fat-fingered trader, it appears sterling has some way still to fall.

As Richard McGuire at Rabobank said: ‘Crucially, the UK government’s evident focus upon satisfying populist demands irrespective of the economic repercussions limits the likelihood of a strengthening of sterling near term.’

Investors have marked down UK assets relative to the rest of the world and it looks like, as the uncertainty goes on, sterling will continue to be marked down. The latest fall has been blamed on the announcement that VTB will relocate its European hub out of the city. Sure, VTB is not a huge US investment bank, but investors may well be thinking this is the shape of things to come.

There was also this morning’s leaked report saying the Treasury is sticking to its pre-referendum forecast that a ‘hard Brexit’ break could leave a £66bn hole in the public finances. The documents say: ‘The Treasury estimates that UK GDP would be between 5.4 per cent and 9.5 per cent of GDP lower after 15 years if we left the EU with no successor arrangement, with a central estimate of 7.5 per cent.’ There are suggestions that the report had something to do with sterling’s continued fall today.

The weak currency is driving the FTSE 100 ever higher at a record rate of 7,128 at the time of writing, up 0.45% today – 15% so far this year. The foreign earnings in the index get a boost from a weaker domestic currency. The FTSE 250 is also up more than 0.8% today.

The good news is the UK consumer is as resilient as ever. According to the British Retail Consortium Survey, UK retail sales across all sectors unexpectedly rose 0.4% on an annual basis in September, after registering a drop of 0.9% the previous month. Next is up 132p to £46.66, while Marks & Spencer has added 4.7p to 326.2p. Burberry is 43p better at £15.22, also lifted by hopes the weak pound will help its overseas business.

House builders also appear to be recovering post Brexit, with McCarthy & Stone stating that business has returned to normal levels after the slowdown immediately following the Brexit vote. McCarthy is up nearly 8% at 175.4p, helping Barratt Developments climb 7.6p to 478.4p and Taylor Wimpey move 2.2p higher to 146p.

Primary issuances also suffered a blow. Pure Gym announced its decision to pull its IPO today, citing ‘challenging IPO market conditions’. In reality I’m sure investors were nervous following the Tory party conference and valuation expectations were too high on the part of the sellers. It’s another example of a company that would have been a perfect candidate for a retail tranche. Why not give the 785,000 members the opportunity to invest in the company and add to the demand generated by institutions?

On a similar note, the government confirmed what we’d long suspected might be the case: it is pulling the Lloyds share offering, instead opting for a trading plan that will offload the taxpayer’s £3.6bn share gradually over the next 12 months. At the IMF meeting, the Chancellor said ongoing market turmoil meant it was ‘not the time to make a retail offer of the type previously proposed’ and that drip-feeding them into the market would ensure ‘the bank is returned to private ownership in an orderly fashion’. So, another manifesto pledge that’s been quietly ditched by the government since the last election.

The last election feels like a long time ago, but I remember Martin Sorrell, the head of WPP, saying the decision about which party to vote for amounted to a ‘Hobson’s choice’. On the one hand, he claimed, Labour was ‘anti-business’; on the other, a Conservative victory would trigger a referendum on Britain’s EU membership. I dread to think how he feels having seen Theresa May’s reincarnation as Ed Miliband at the Conservative party conference.

In the past week the government announced and then unannounced the need for companies to publish foreign workers; announced that if you are a citizen of the world, you are a citizen of nowhere; and backtracked on its suggestion that workers should be on boards. In the Commons, Iain Duncan Smith used a very un-parliamentary tone to call Keir Starmer QC (the previous Director of Public Prosecutions and founder of Doughty Street Chambers) a ‘second-rate lawyer’ when the latter suggested there should be a proper parliamentary debate on the terms of Brexit. It’s ironic a campaign that was founded on the sovereignty of parliament will not contemplate a vote on the most important issue for at least a generation.

For a party with no parliamentary opposition, at least the markets have given them a torrid time. As Martin Woolfe says in the FT, ‘The markets have taught Theresa May a hard lesson on sovereignty.’ The risks appear to be crystallising for investors and they are judging our economy and our political system. Sterling seems to be the barometer.

 


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