90-days[1] to the next predictable Brexit cliff edge. The UK Government has still got a hell of a lot of work to do to get ready for a Brexit No-Deal scenario. The international currency markets have detected the fragility of the current situation and reacted accordingly. The British pound sterling is at 1.216 to the $ and 1.094 to the EURO as I write this short sentence. That’s an incredibly poor rate, even if you took the view that the pound sterling has been overvalued. British summer holiday makers are going to find this fact painful, but the flipside is tourist coming to the UK are going to have a great time. No doubt, air traffic will continue to grow to carry these welcome visitors from overseas. Unfortunately, in the short-term the threatened strike at British Airways (BA) may put a damper on that prospect.
The bigger issue is: what the state of the national currency says about the level of risk we are taking with Brexit. It’s not a vote of confidence. Currency rates may tumble further.
There’s a list of Brexit downsides and one is that British assets now look cheap to overseas purchasers.
I’m not saying that this is a specific example, but I noted with interest the sale of the British defence and aerospace group, Cobham to a US private equity firm for 4 billion pounds[2]. Today, Cobham employs 10,000 people. They were known for the development of airborne refuelling systems, which was a British innovation. This organisation is part of my aerospace design history. In the 1990s, on a regular basis, I visited what was then called; Flight Refuelling Ltd, just outside Bournemouth. I did numerous approvals of modifications to the Falcon 20 aircraft that they flew[3].
Sadly, the UK’s recent keenness to leave the European Union (EU) without a deal, on 31 October 2019 is like hanging out a big “For Sale” sign. Sound companies with valuable intellectual property look like a good buy. That said, this is not new for the UK. There are desperate periods in our history where selling the family silver was quite the vogue.
My point is that there are valuable British assets that look cheap to foreign investors given the uncertainties of Brexit. Which is ironic because it’s completely the opposite of what Brexit was supposed to be about, namely; take back control.
History always has lessons for us. Even recent history. I’d recommend an offering from the UK TV Channel 5 with Portillo’s series: “The Trouble with The Tories”[4]. He interviews many of the key players who brought the never-ending Brexit calamity upon us. I watched it and thought, just how useless knowledge with hindsight can be. Not only that but how dreadful British politicians are at assessing risk.
One thing I’m sure of, next week is going to another Brexit rollercoaster. It’s as if we have invented perpetual motion. It would be wrong to see No Deal as the end point or finish line.
[1] https://interactive.news.sky.com/2017/brexit-countdown/
[2] https://uk.reuters.com/article/us-cobham-m-a-advent/us-private-equity-group-advent-buys-uks-cobham-for-5-billion-idUKKCN1UK0NA
[3] http://www.aeroflight.co.uk/tag/flight-refuelling-ltd
[4] https://twitter.com/channel5_tv/status/1157040808845094912?s=20
John Vincent 