Although we all knew the UK entertained a Brexit situation, not many believed it could happen, and a few made money when it happened. What is the situation now and how can it affect your portfolio?
At XTrade we like to keep an eye on the future without loosing sight of the past. Of course, we do not stare into the past, but we know that understanding the past can prepare you for the future. Would you not agree with that?
If so, have a look at what has happened since the Brexit announcement. The first signals were “SLOW”—like what you see written on the UK roads when you approach a tight curve or a crossing. Manufacturing exporters may have benefited a bit, but the GBP seemed to explore the depths of the GBP-USD chart, reaching its lowest point in 31 years, and the UK-centric FTSE 250 sheered abruptly.
What was the reaction of the bank of England? They clearly indicated that in August, interest rates would be cut.
In view of this, it is completely understandable that consumers and business confidence plummeted.
XTrade’s Advice for Investors
XTrade agrees with the majority of experts when they say that it is wise to be cautious. What usually happens in big-impact situations like the Brexit? Normally there is an instinctive reaction, the same as when you hear the horn of a car behind you—you jump. But what if the car is not beeping at you, but at someone else? If you instinctively jump you could actually be putting yourself at risk by moving towards the car. So, first make sure of what is happening and then take the right action, if necessary. We say if because at XTrade we are aware that many investors’ outlooks may have not changed, therefore it would not be advisable to change their strategy.
Nonetheless, it is evident to all that the vote to take the jigsaw piece with the English flag away from the European puzzle can and will have big consequences for investors which will affect their pensions, properties, and even the capacity to trade collectibles.
Should I Buy Government Bonds?
The reality is that while the future of the economy of the United Kingdom is a bit gloomy since it lost the AAA rating, quite a few investors seem to be purchasing UK bonds, why? Well, that depends on the amount of optimism they have.
For those who believe that the UK economy will thrive as a result of the challenge presented by saying au revoir to the European Union, buying fixed income securities right now may not be the best idea.
However, what would happen were inflation to continue lethargic over a long period of time? The Bank of England would be obliged to kick into action and cut rates, in which case it would be beneficial for you to lock in the interest now, before it goes into a tailspin.
So far, UK government bonds have managed to be one of the top assets, recompensing owners—or those who trade CFDs with XTrade—with substantial returns. And it is quite likely that the Bank of England will work to support UK government bonds.