An epidemic of uncertainty
UK businesses and their FDs are routinely faced with every form of uncertainty that a globalised economy can create. And as we have noted before in the F-Zone, financial impacts that might be considered generally positive, often turn out to be actually quite scary. Oil prices being the perfect example. What joy is there in cheaper petrol prices and air fares when they are driven by a slowdown in the Chinese economy?
Buffeted by geo politics
As if being buffeted by geo politics isn’t enough, the UK has got referendum fever. If the Scottish referendum is anything to go by, the fall-out from the Remain v Brexit vote will be catastrophic, whoever wins. The vote on 23rd June looks too close to call, but one thing is for sure, it will not be business as usual for the UK, in or out! Looking back, a political manoeuvre designed to keep one party in power, has split it irretrievably, with potentially massive costs for the UK economy.
However, uncertainty over our future trading relationships with a potentially hostile EU, a recalcitrant US and the great unknown are nothing compared to a far greater uncertainty – namely the complete breakdown of economics as we know it.
Driven by the 29 trillion dollars that central bankers have put into the global economy since the crisis of 2007/2008, market forces have become so distorted that normally reliable models have ceased to function. The relationship between employment levels and inflation has broken down. Unemployment has fallen but wages are not increasing. Advances in technology are not boosting productivity, profits or leisure time. Stocks and bond prices no longer move together in predictable patterns.
No less of a figure than Janet Yelland has admitted that there is so much uncertainty that “it makes sense to use a risk management approach to identify and avoid the big mistakes”. The Fed is thereby acknowledging that the new financial and economic landscape requires deft regulation and quick reactions to keep the US recovery on track.
Meanwhile, at the same point in history, we in the UK are about to vote on whether to destabilise relationships with our key allies and derail important trading partnerships in pursuit of principles we will almost definitely not be able to afford. Forward-looking FDs will do well to predict the result of the forthcoming vote. It will take nothing short of a genius to work out the consequences!