BREXIT UPDATE Markets are experiencing further volatility and even more so in the UK. However, the downside was not comparable to the drops that we saw last Friday. European leaders have made it clear that no Brexit talks can begin, until article 50 is enacted. We have mentioned the EFTA and given that once article 50 is initiated the UK has two years to negotiate an exit strategy. It is likely that the other practical option open would be for the UK to move into the EEA with Norway and Lichtenstein. There would simply be no time to negotiate a free trade agreement. The alternative for the UK would be to leave the single market and default to being a WTO member. This scenario was the one outlined by the treasury that would see UK GDP fall by as much as 6%. Interestingly enough, the EEA does have an example of a member with restricted movement! Lichtenstein has a 5 year rolling agreement with the EU and all new arrivals must register with the government before coming over the border and it can restrict the flow of new residents. A similar deal could be quite palatable for many of those in the leave campaign. Boris Johnson certainly seemed to hint at this in his article yesterday in the Telegraph newspaper. The EEA also comes with access to 26 further free trade agreements, which the UK could initially use, before trying to negotiate better terms for itself. While the UK would have to accept some freedom of movement and single market regulations it would become exempt from the European Court of Justice and the Common Agriculture and Fisheries Policy. The UK’s net contribution to the single market would probably not change from its current position, as Norway pays the same as the UK on a net per capita basis. Indeed this may be the reason that every member of the leave campaign has dropped the pledge to spend an extra £350 million per week on the NHS. On the flip side for Europe, German contributions to the EU will have to rise by some €3 billion per annum to compensate for the loss of the UK. A move of the UK into the EEA would negate that problem. The EU will also still have tariff free access to its biggest trading partner. The EU is likely to extract its pound of flesh from the agreement by stripping London of its ability to deal in Euro’s. The ECB has wanted all Euro transactions done inside Eurozone for some time. While this would be bad for London it would not be catastrophic. The chairman of the conservative 1922 committee has put in place a deadline of 10 weeks, to appoint a new leader and he wants them in place by the beginning of September. So we will have no resolution to the current uncertainty until at least September and more likely the end of the year. As such we expect to see markets calm down later this week on the lack of news flow on Brexit and we see today as a good point to re-enter the market.

Brexit Update - Farringdon Group Ltd (28th June 2016)

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BREXIT UPDATE

Markets are experiencing further volatility and even more so in the UK. However, the downside was

not comparable to the drops that we saw last Friday.

European leaders have made it clear that no Brexit talks can begin, until article 50 is enacted. We have

mentioned the EFTA and given that once article 50 is initiated the UK has two years to negotiate an

exit strategy. It is likely that the other practical option open would be for the UK to move into the EEA

with Norway and Lichtenstein. There would simply be no time to negotiate a free trade agreement.

The alternative for the UK would be to leave the single market and default to being a WTO member.

This scenario was the one outlined by the treasury that would see UK GDP fall by as much as 6%. Interestingly enough, the EEA does have an example of a member with restricted movement!

Lichtenstein has a 5 year rolling agreement with the EU and all new arrivals must register with the

government before coming over the border and it can restrict the flow of new residents. A similar deal

could be quite palatable for many of those in the leave campaign. Boris Johnson certainly seemed to

hint at this in his article yesterday in the Telegraph newspaper. The EEA also comes with access to 26

further free trade agreements, which the UK could initially use, before trying to negotiate better terms for itself.

While the UK would have to accept some freedom of movement and single market regulations it

would become exempt from the European Court of Justice and the Common Agriculture and Fisheries

Policy. The UK’s net contribution to the single market would probably not change from its current

position, as Norway pays the same as the UK on a net per capita basis. Indeed this may be the reason

that every member of the leave campaign has dropped the pledge to spend an extra £350 million per week on the NHS.

On the flip side for Europe, German contributions to the EU will have to rise by some €3 billion per

annum to compensate for the loss of the UK. A move of the UK into the EEA would negate that

problem. The EU will also still have tariff free access to its biggest trading partner. The EU is likely to

extract its pound of flesh from the agreement by stripping London of its ability to deal in Euro’s. The

ECB has wanted all Euro transactions done inside Eurozone for some time. While this would be bad for London it would not be catastrophic.

The chairman of the conservative 1922 committee has put in place a deadline of 10 weeks, to appoint

a new leader and he wants them in place by the beginning of September. So we will have no resolution

to the current uncertainty until at least September and more likely the end of the year.

As such we expect to see markets calm down later this week on the lack of news flow on Brexit and we see today as a good point to re-enter the market.