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Should markets be bothered by Brexit battles?

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

The media have been excited about UK politics. Financial markets and people in the real world have been much less excited. UK events remind us that politicians are not as important as they think they are.

On 6 July the British cabinet agreed to try for a "soft" exit from the EU. The EU has not agreed. The EU probably will not agree the plan in its current form. The decision did at least give a sense of the UK government's hopes (or dreams).

On 9 July two cabinet ministers resigned. The media suggested that such losses could bring down the government. That seems unlikely at this stage.

The value of the pound stayed in a narrow range. The pound is the asset most likely to overreact to political noise. It is foreign investors' view of the UK that sets the pound's value. The bond market and equity market were also unaffected.

Calm financial markets are a reminder that political noise rarely changes the near-term economic outlook. Whether people have jobs and can afford to spend money is what matters for the near term. Political direction affects an economy's long-term trend growth. That is very important, but not normally an investor focus.