So, the question of Britain’s continued membership of the EU was going to remain on the agenda, regardless of who won power and how long they kept it. There could be a short-term hit to investment in the run-up to the referendum, but other global forces may well matter more. It is not obvious that a referendum held in 2016 or 2017 is more likely to end in a UK exit from the EU than one held in 2020 – or even 2025. Nor is it clear now which would cause more lasting uncertainty for business or investment.
Our role in Europe, the growth rate of productivity and the state of global demand – on any reasonable timeframe, these are the things that matter most to Britain’s economy and its markets.
With growth and policy still broadly supportive, it makes sense for investors to have a modest bias towards risk assets in their portfolio. But recent volatility is a reminder of the importance of diversification. Investors with a medium-term outlook have reason to be broadly positive about the UK. It is, after all, likely to be one of the fastest-growing countries in Europe in 2015 and possibly 2016 as well. But if you were focused on those long-term uncertainties before the election you should realise that they remain just as uncertain today.
Stephanie Flanders is chief market strategist for Europe of JP Morgan Asset Management
Key points
Markets reacted to the surprising UK election result with relief.
UK productivity is now around 15 per cent lower than it would have been had it continued to grow at its long-term trend rate.
No country can afford to borrow 5 to 6 per cent of its GDP from the rest of the world indefinitely.
