Uncertainty Nightmare? Brexit or the May Election?

It would appear that star fund manager Neil Woodford is rarely out of the financial headlines these days, something which is not surprising given his leading position in the market, and everyone else’s attempt to get a dose of his winning investment pixie dust.

Going alongside the guru status of course comes the views of the man on all things macro economic/political. The latest is that Brexit uncertainty will, according to Mr Woodford, damage the UK economy, as reported in The Telegraph. On the face of it, this sounds like a relatively obvious and sensible thing to suggest, even though to date it has been the calamities of the Eurozone which have led to a massive capital flight to London, both of laundered and unlaundered cash. So far we have won, and won big.

Alas, the markets hate uncertainty, and therefore it would be logical to presume that investment whether in UK stocks or the economy would be undermined until the matter of whether the UK remains in the EU is resolved one way or the other. On this point it would appear that the story could rumble on until at least 2016, or sooner if UKIP holds the balance of power.

But getting back to The Telegraph, which is big on the Eurosceptic angle, to the point of hysteria, it may be worth dissecting some of the key points. This is because even if you believe that the EU idea was and is a total disaster, we are still getting the same fallacious and misconceived ideas as to why the worst Big Government project in the world has failed.

For instance, the old chestnut about geographical economic imbalance, as there could never be integration between the Portuguese and German economies. If there can be an economic connection between Ulster and Great London, there can be between Portugal and Germany. Indeed, the joining of the West and East German economies was painful, but in the end it did work.

The other major point of the Woodford article is that Britain’s place in the EU is “untenable”. There are a couple of points to wheel out here. The first is that given the current Grexit debacle, the position of the EU as a whole appears untenable, and it may simply have to disintegrate and revert to the motley collection of countries it was pre 1960.

Unfortunately, that would merely underline that so many nations in a relatively small space have a rather frequent habit of going to war with each other – Bosnia 1995 was a case in point. In fact, the UK is a shining example of what the relationships within the EU should have been – countries with free trade and free movement of goods and services, but those who kept their currency and the bulk of their sovereignty. In other words, the European Economic Community idea that we voted yes on in the 1970s.

On whether the EU idea is a total disaster, if one is truly objective it could be said that it was the financial crisis which really undermined the project, and that if this import from sub-prime America (the original Federal monster) had not occurred, we may be looking at a rather healthier picture on the Continent than we see now.

But as Woodford suggests, it is not problems with reality which are the focus in the financial markets, it is the uncertainty which hurts. I would venture to suggest that while the EU is an ongoing problem, in the near term the May Election here is a much bigger factor, and far more unpredictable. Indeed, it could be a major factor in deciding how the EU moves over the next couple of years. This is especially the case if a Labour/SNP alliance is forged, in which case even die hard Eurosceptics may be begging to remain within the EU…