Although I feel as if it is all I have talked about for months, the vote to leave the European Union is still what charity trustees and managers ask us most about and will be a key factor in determining future economic growth patterns. For what it is worth, here is my current take.
So far, equity markets appear to have shrugged off the UK's decision to leave the EU, despite warnings from the International Monetary Fund about the impact on growth. I believe this market strength can be attributed to both currency movements and the expectation of further monetary stimulus from central banks.
The fall in sterling does have immediate benefits for UK share prices. More than two-thirds of the UK market's earnings come from overseas, which means they are worth more in sterling after the currency depreciation. This translates into increasing share prices. A back-of-the-envelope calculation suggests that a 10 per cent fall in sterling equates to a 7 per cent rise in earnings at a market level. At the time of writing, we've seen a fall in sterling since the vote of 13 per cent and a proportional rise in the market of 9 per cent. The short-term effect on share prices has been positive, particularly for larger global companies.
The longer-term economic impact remains unclear, however. We still see a drag on economic activity from the rise in uncertainty as well as an increase in political risks. The UK appears to have enjoyed solid growth before the EU referendum, but early evidence suggests activity has slowed sharply since then.
Monetary stimulus has followed as the Bank of England cut interest rates in an attempt to avoid a recession. This has driven bond yields lower and continued to support income-biased investing strategies. Meanwhile, investors are counting on the increase in liquidity to drive asset prices, creating a "stop-go" market ever more dependent on liquidity injections from central banks. We have some scepticism about the real efficacy of recent policy moves by the Bank of England - we are not convinced that further reductions in interest rates and quantitative easing will address the issue, namely a lack of activity due to uncertainty about Brexit.
So the outlook remains unclear. Economists' forecasts for growth in 2017 show a huge range: some predict recession, others growth driven by weak sterling. Short-term market swings will be determined by sentiment and there are sure to be political twists and turns. That is why, for charities that have investments needed for expenditure over the next 12 months, we are using this market strength to reduce equities. While it is too soon to judge the real long-term impact of the historic vote, the short-term market performance has at least been encouraging.
Kate Rogers is head of policy at Cazenove Charities