In the UK, May was dominated by discussion over the impending referendum on the UK’s membership of the European Union (EU), which is scheduled to take place on 23 June . During the month, the tenor of the debate became progressively irritable, as theorising and argument over the economic impact of a Brexit became increasingly entangled in sensitive social and political issues.
The FTSE 100 Index rose by 1.1% in April, but remained broadly flat over the first four months of the year. Medium-sized companies – represented by the FTSE 250 Index – edged down by 0.7% over April, and fell by 3.6% since the beginning of the year. Smaller companies fared rather better than their medium-sized peers: the FTSE SmallCap Index rose by 1% during the month, but fell by 1% over the year to date.
The Bank of England (BoE) warned that a Brexit could harm UK economic growth, undermine the strength of the pound, and lead to an increase in unemployment. Meanwhile, the Confederation of British Industry (CBI) highlighted “signs that uncertainty over the outcome of the EU referendum is having a tangible impact on the spending plans of some firms” and warned of a “dark cloud of uncertainty”. Elsewhere, the International Monetary Fund (IMF) predicted that a Brexit would precipitate a protracted period of heightened uncertainty that would lead to volatility in financial markets and a decline in economic output.
The Brexit debate already appears to have had a tangible effect on businesses in the UK: the IMF highlighted a 40% drop in the number of commercial real estate transactions during the first quarter; moreover, in a trading update, broadcaster ITV warned that uncertainty over the referendum was curbing companies’ willingness to book advertising.
The FTSE 100 Index fell by 0.2% in May, but remained relatively unchanged over the year to date. The mining sector remained volatile during May; meanwhile, the oil sector was jittery towards the end of the month in anticipation of a meeting of Opec (The Organization of the Petroleum Exporting Countries) in Vienna in early June.
The FTSE Small Cap Index crept 0.2% higher during May, but posted a year-to-date drop of 0.8%. Medium-sized companies – represented by the FTSE 250 Index –fell by 1.4% since the start of the year, but rose by 2.3% during May, and several FTSE 250 Index constituents garnered headlines during the month. Investment company Alliance Trust confirmed that it had received a bid approach from RIT Capital partners; meanwhile, security firm G4S announced a 4% rise in group revenues for the first quarter. On a rather less positive note, however, the share price of FTSE 250 Index constituent Thomas Cook plunged after the company cut its full-year earnings forecast and reported a decline in bookings caused by an increase in geopolitical concerns.