UK referendum does not appear to have triggered an economic contraction - BBH

Research Team at BBH, suggests that after an initial hit to sentiment, the UK referendum does not appear to have triggered an economic contraction. 

Key Quotes

“Economic data are generally coming in better than expected.  The Bank of England acted preemptively, providing low rate loans to banks, cutting interest rates and re-launching an asset purchase plan than includes corporate bonds.  Critics of Bank of England Governor Carney argue he was too partisan before the referendum and led a panicked response afterward. 

Some of the criticism is unfair.  We do want policymakers to act to minimize the biggest regret.  The biggest regret would have been if officials did nothing and the economy took a hit.  Part of the reason the economy did not take a harder hit was that sterling and interest rates fell sharply, and this was facilitated by the signal and real response by the BOE. 

Nor can medium and long-term investors forget that despite all the talk, Brexit has not yet taken place.  Business decisions on location and hiring take some time to formulate and implement. The full impact of the referendum is still to come.  The week ahead will provide more fodder. Ironically, the BOE meeting may not be the highlight for investors. 

In the past, when the BOE would not do anything, they did not say anything.  Times are different now.  The minutes, for example, are released simultaneously with the decision.  The market is interested in how the Monetary Policy Committee understands the context of its decision, and, in particular, the prospects for a further cut in interest rates, which seemed to have been previously implied.”