Belfast Telegraph

Markets shaken by political upsets in the year of Brexit and Donald Trump

Britain's decision to quit the European Union and Donald Trump's shock US election victory were the two stand-out political shocks in an extraordinary 2016, events that are expected to cast a shadow over the global economy for years to come.

Following a day of torrential rain showers, the UK voted by 52% to 48% on June 23 to unravel 43 years of cooperation with the EU and plunge its economy into peril in what experts described as "an act of economic self-harm with global ramifications".

The FTSE 100 and sterling reacted predictably, tanking the following morning.

While the stock market eventually recovered to hit new highs, the pound is still languishing at embarrassing lows, having plunged against both the dollar and the euro in the aftermath of the referendum.

A string of companies - including British Airways and easyJet - issued profit warnings in the weeks and months following the vote as the Conservative Party descended into chaos, unleashing unprecedented political uncertainty.

While Brexit recession warnings from the Bank of England ahead of the referendum proved unfounded, with growth and employment holding up since the vote, the Office for Budget Responsibility (OBR) expects the economy to take a hit of almost £60 billion over the coming five years.

After the dust settled and the result had been digested, Theresa May emerged as Britain's Prime Minister.

However, businesses looking for a clear vision for the country's future trading relationship with the EU were to be disappointed as Mrs May proceeded to reel off a series of meaningless soundbites in response to hard policy questions.

"Brexit means Brexit" and demands for a "red, white and blue Brexit" were dismissed by City figures such as Ryanair boss Michael O'Leary and financial PR guru Roland Rudd, who were among those to deliver a withering critique of her early months in office.

In the background to the political farce, the pound gyrated depending on the confused pronouncements of government ministers who variously proclaimed that Britain would remain in the single market, leave it entirely or pay to have access to it.

Sterling weakness led to a number of price hikes for consumer goods, such as Marmite, with families set to be hit hard with rising inflation forecast for 2017.

All the while, the City grew restless.

The primary concern for financial firms centres on whether the UK can hold on to passporting rights, which allows them to trade freely across the EU.

With government unable to provide clarity, City firms are actively looking to relocate, potentially bringing down the curtain on London's position as Europe's premier financial centre.

As the British dithered, in the US another seismic shock occurred when Hillary Clinton was defeated by businessman come reality TV star Mr Trump in the US election.

The market reaction surprised observers. US indices and the dollar initially slumped on the news but swiftly recovered to hit a series of highs in the following weeks.

Investors were dubbed "Trump drunk".

Michael Hewson, chief market analyst at CMC Markets, said: " You could almost call it getting Trump drunk.

"I nvestors buy into all of the good bits of the Trump narrative, while choosing to ignore the bad bits, as markets relentlessly grind their way higher."

Away from markets, Mr Trump's Twitter feed provided more clues as to how the outspoken Republican will run the country once in office.

Mr Trump said he will reduce the cost of the Pentagon's most expensive weapons programme - Lockheed Martin's F-35 Joint Strike Fighter - and signalled that he may cancel a new Air Force One being built by Boeing because the costs are "out of control".

In addition, he has pledged to leave his businesses to his sons before January 20 in order to focus on running the US as president and to ostensibly avoid the potential for a conflict of interest.

The businessman has also irked China by calling into question Beijing's "one nation" policy in relation to Taiwan.

Last week, the state-run Global Times newspaper lashed out in an editorial: "Trump is not behaving as a president who will become master of the White House in a month."

"He bears no sense of how to lead a superpower."

How this relationship develops will be pivotal to global economic stability.