Is Brexit really the main cause of sterling weakness?

Added 24th May 2016

Sterling is down almost 10% against the euro in the past six months. Many people automatically assume this is because of fears over Brexit. However, there are probably other factors at play too.

Is Brexit really the main cause of sterling weakness?

“People have been taking the slide of the pound as a reflection of Brexit without thinking of what’s going on in the UK economy,” said Fred Jeanmaire, a European equity manager at Columbia Threadneedle, referring to recent slumps in real estate prices and a more general slowdown of the UK economy. Jeanmaire believes Brexit is not likely to happen, since Britons tend to stick with the status quo. “It is a major risk, but in the end the British population is quite conservative. They still have a queen.”

While you may argue that Brexit fears exercise downward pressure on prime central London property prices, Britain leaving the European Union is indeed by no means the base scenario for investors. We polled local fund buyers at the investment forum in Helsinki, Finland, where Jeanmaire made his comments. It turned out that all of the approximately 30 investors gathered there expect Britain to vote to stay in the EU on the 23rd of June.

Rate hike expectations

Polls we held elsewhere in Europe this spring also all gave similar results, albeit they were not all as conclusive. So, if it’s not Brexit, what could be the trigger for the sterling slide? In fact, the currency’s weakness has very much to do with market expectations of a BoE rate hike being pushed forward since the beginning of the year, said Ed Smith, investment strategist at Rathbones, a UK asset manager. This in turn may be related to the possibility of the UK leaving the EU, Smith admitted, but it’s also a response to weaker economic data.

“There has been a slowdown in the economy and frankly that’s been driven by the UK coming out of crisis way earlier than the rest of Europe. The country is just in a slightly different cycle now,” said Jeanmaire. And this is not at all bad news for euro-based investors. “For us it brings quite attractive opportunities, as there are quite a number of very large, global consumer companies listed in London. You can now buy them with a discounted currency and very nice EPS growth,” he said. “Both from a structural and tactical perspective we actually see the UK market as quite attractive.”

Jeanmaire is not the only one who sees opportunities in UK equities at the moment. My colleague Alex Sebastian made the case for the asset class very recently and, perhaps in response to that, NN Investment Partners also upgraded its outlook for UK equities. UK dividend yields and P/E ratios are now attractive on a long-term basis, thanks to the recent depreciation of sterling, the Dutch asset manager argues. 

"Brexit is a major risk, but in the end the British population is quite conservative. They still have a queen” - Fred Jeanmaire

Click here to see a full overview of delegate voting results from Expert Investor Finland.

And here you can see a selection of photos taken at the event.

Kames Income Hub


Vincent McEntegart, manager of the Kames Diversified Monthly Income Fund, explains how he aims to deliver a stable and sustainable income of 5% p.a.*, paid monthly, by investing in a range of asset classes

Square Mile Research

Lazard Emerging Markets
Lazard Emerging Markets

Talking Factsheets is a video service for users...

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address

About Author

Tjibbe Hoekstra

Senior Reporter

Tjibbe joined Expert Investor as a senior reporter in March 2014. Before moving to London he worked as a financial news reporter for various news outlets in Amsterdam, including Reuters and ANP, the main news agency in the Netherlands. He also worked for Fondsnieuws, a website and magazine for finance professionals in the Netherlands. Tjibbe holds a MSc in Public Administration and a post-graduate diploma in Journalism.



Investment Strategy




PA Channel Island 2016
PA Channel Island 2016

8th November 2016
The Royal Yacht, Jersey


17th November 2016
The Andaz

PA Emerging Markets 2016
PA Emerging Markets 2016

1st December 2016
The Mayfair, London

Sponsored Content

Investment Strategy