The UK economy has big shocks coming, regardless of Brexit
There are at least three other potential shocks that could be as significant to the UK as Brexit.Bilal Hafeez spent over 20 years doing research at big banks.With the large Conservative majority in government, both UK markets and the economy are likely to enter a honeymoon period in the months ahead. While many are focused on Brexit as the main shock that could hit the UK economy, there are at least three other potential shocks that could be as significant.
The most obvious candidate would be a crisis in the non-bank financial sector. Regulators have constrained bank balance sheets, while asset managers have more freedom. Moreover, private markets – where private equity and leveraged finance live – have exploded. And these have even fewer constraints. What makes matters worse is that people are expected to live well beyond the statutory retirement age of 65. For example, on a cohort-basis, women in the UK are now expected to live to 92 years. That means – at the current age of retirement – potentially 27 years living off their pensions.
However, in the 2010s, the real yield has collapsed to 0.15%. Worse still, since 2017 the real yield has been negative. Now the compounding accelerates against pension funds.
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