A decade on from the Brexit vote, political upheaval has reshaped the UK. Michael Browne, Global Investment Strategist at Franklin Templeton Institute has a view that the economic and market reality tells a more nuanced story.
In 2016, standing on the concourse of Victoria station just three days before the vote, a friend close to the Remain camp called me. “I think we have lost it.”
As someone who had worked in London for three decades before decamping to Brighton, one of the rare Remain cities, I was shocked. “Drive round Hampshire or Nottingham and Yorkshire and just look at the posters,” she said. David Cameron’s gamble to silence the anti-EU right was about to go radically wrong.
As a European equity manager, the risks around such an event meant I had little UK exposure anyway, and what little there was, was removed there and then.
The shockwave was immediate: the pound and the gilts market shuddered. Europe glitched. Merkel et al had not seen it coming and had played hardball months earlier when Cameron asked for concessions.
How penny-wise and pound-foolish they now seemed. This hardened into a simple French-led narrative: make this so unpleasant no one else will dare do the same.
What followed was the mess and muddle of the May years. She lost her majority, almost handed the keys to No.10 to the radical left, and resigned having failed to pass almost anything through parliament.
The factional fighting of 2016–19 critically undermined parliament as an institution. The electorate then simply wanted it done, and Johnson’s landslide was a mandate for exactly that. Previously red lines – no separate deal for Northern Ireland – evaporated, and in early 2020, just before Covid, the UK floated off into the North Sea.
Fishing rights barely changed, freedom of movement was gone, a long tail of payments remained, but the UK could now set its own laws and pursue its own trade deals.
Then Covid struck, and momentum stalled entirely. The US presidency shifted from sympathetic to hostile. Companies were left to manage new regulations and shrinking margins by themselves.
Meanwhile, Partygate so undermined Johnson’s authority that he was gone after just half his term. Things then got worse under Truss and Sunak.
Trust in politicians sank to new lows. At a UK conference in Autumn 2022, the CIO of a major insurance company declared that Brexit had made the UK uninvestable – not because of the politics, but simply because she believed no one would make money having left the EU.
I was as shocked as I had been at Victoria station, because while the political noise raged, companies had simply got on with life. Earnings and EPS were broadly fine. GDP growth, both before and after Covid, was roughly in line with our European neighbours.
Hard to deny that growth may have been somewhat worse than it might have been – but relative to our biggest trading partners across the Channel, the UK did not materially underperform. -Even in mid-caps, total returns across the UK, France and Germany sit in a narrow channel, with the UK potentially paying more in dividends.
The bond markets tell a different story. The spread between 10-year UK gilts and German Bunds, which ran between zero and 80 basis points from 1999 to 2016, then began to rise steadily – the old ceiling became a floor – peaking at 2.24% just before last year’s budget.
The UK’s inflationary experience has been worse than Germany’s, and while German politics is troubled, its constitutional fiscal discipline has remained intact, maintaining credibility.
The UK, by contrast, embarked on a Covid and post-Covid fiscal spending spree that continues today. Higher rates have created vast savings surpluses parked in bank accounts and ISAs – good for bank profits, bad for housebuilders and innovators.
On equity market fundamentals, however, the picture is striking. Measuring the MSCI UK against Germany, France, Italy, Spain and the Eurozone on return on equity, return on assets, operating margin, net margin and return on invested capital – in 2016 the UK ranked 2nd, 3rd, 3rd, 1st and 2nd respectively. Today it ranks 1st, 2nd, 1st, 1st and 1st. An all-round improvement.
What about AI, the great investment boom since Brexit? Over the ten years to 2025, the UK saw more private AI investment than Germany and France combined – a credible $34 billion. Yet that figure is dwarfed by the $757 billion the US invested over the same period.
In those numbers lies the crux of the European problem: in or out of the EU, we have all missed the boat on AI. It is a US invention, developed and rolled out in America, which we will all need to subscribe to.
There is no European equivalent of the leading AI platforms, and future growth and employment will reflect this chasm, with the risk that the best minds migrate to the US as they did in the 19th century.
The outlook for UK-EU relations has modestly improved. Common threats – Russia and immigration – create space for cooperation. But real rapprochement would need an explicit manifesto commitment, because sovereignty remains the defining argument. In 2016, people voted against remote politicians running their lives badly.
Those politicians are less remote now, but scrutiny and disdain have only intensified. The failure of the current administration to grow the economy, control immigration or fix the NHS has left it friendless, driving a broader political revolution – the collapse of the old parties and the rise of new ones.
This is the true legacy of Brexit, and until it is settled, any question of renewed cohabitation with Europe remains impossible.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
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