Investors are continuing to shrug off the impending U.K. exit from the European Union, with the London’s FTSE 100 down only 0.1 percent on Monday after Prime Minister Theresa May announced that the U.K. would formally begin its economic separation from the rest of the eurozone on March 29.
The long, complicated process of leaving the E.U. begins with the U.K. triggering Article 50 of the Lisbon Treaty later this month. Article 50 spells out the formal process the U.K. will need to follow for the process that has become known as Brexit. Once Article 50 is triggered, the negotiating process will begin and an agreement must be reached within a two-year timeframe.
U.K. citizens voted last June for Brexit in a vote that came as surprise to many investors. Many economists found the plan could do significant damage to the British economy. An annual Financial Times survey earlier this year found that 122 economists expect U.K. GDP growth to slow from 2.1 percent in 2016 to 1.5 percent in 2017.
Financial markets delivered a strong initial reaction to the Brexit vote last year, sending the British pound to its lowest level in 30 years.
But the FTSE 100 has held up extremely well since the vote. After initially plummeting more than 2.5 percent, the FTSE has rebounded and is now up 18.3 percent since the referendum. The FTSE has outpaced the Standard & Poor’s 500 index, which is up 14 percent in that time.
British companies with mostly domestic businesses will likely be impacted the most by the Brexit. The companies that comprise the FTSE 100 generate roughly 75 percent of their sales internationally. Those international sales have benefited significantly from weakness in the pound.
According to Bank of America analyst Kamal Sharma, the pound sterling may have even more weakness ahead after the U.K. triggers Article 50.
“We reject the notion that sterling has fully priced Article 50 and beyond. Risks to the currency remain to the downside on a disruptive start to negotiations,” Sharma wrote…
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