SpotlightJuly2016

SHAPE MATTERS.

The Bank of England which have moved forward with similar stimulus programs and cut rates to or near zero.

As would be expected Britain will take the brunt of the economic fallout from its exit from the EU. Business investment is expected to suffer as the country is forced to redefine its trade relationship with its biggest export market, the EU, where it currently enjoys free trade. There has been much talk and speculation that many businesses could leave Britain or move production to others coun- tries within the EU and now that the Brexit vote compa- nies have to weigh their options which is causing much uncertainly in the marketplace. Britain’s was not the only one affected by the Brexit as the reaction of Britain’s vote will impact governments and fiscal policy all around the world. It was expected by some analysts that The Bank of England would increase its benchmark interest rate this year. However, given the Brexit outcome, Britain may be forced to cut rates and some even think it could have to start injecting new money into its economy again. Looking at the United States, the expectation had been that the Feds would raise rates twice this year, with the first increase occurring in July. Given the recent stumble on the market and the impact that Brexit is having on global markets, economists are now saying that a rate increase is very unlikely for the rest of 2016. The US government is not only concerned about stock market volatility, but other fallouts from the British vote, including a further rise in the value of the dollar which could hurt U.S. exports and further slow the American economy and falling oil prices which could worsen the slowdown in the U.S. energy sector. Many economists have lowered their U.S. growth fore- casts this year by as much as a half-point, now predicting the U.S. economy will likely manage growth of perhaps 1.9 per cent this year, with further weakness in 2017. Many are asking what will be the long term impact as central banks appear ready to keep rates lower for much longer than expected. The Bank for International Settle- ments, which is a forum for the world’s central banks, has warned that the effectiveness of low rates diminishes and risk adverse side effects increase the longer interest rates are kept low. It is easy to see why the world was watching Britain this past month and history will tell us whether the correct decision was made, the unfortunate part is that there is more than just the British economy at stake.

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