Introduction
Now that the ballot boxes have closed, and the nation has voted to leave the EU, a cloud of uncertainty looms over what will happen next. There are concerns that the UK will enter into another period of recession, bringing back memories of the “credit crunch” of 2008.
You may be asking what will ultimately happen to the UK economy and your personal finances. Unfortunately, there is no definitive answer and it is this uncertainty and instability that might create disruptions people are concerned about. In this article we review some possible outcomes and how these might affect you.
Sterling
Sterling has already declined in value against the dollar leading up to the referendum and following the results the Pound was worth 2.8% less by the close of business on Friday. Experts predict that the value of Sterling will remain low over the medium term which would mean that the price of imports will increase and the price of exports decrease. This in turn may lead to higher inflation rates.
On the other hand, businesses who rely on exports will benefit from the devaluation of sterling, as they can sell their goods overseas for what is effectively a lower cost, whilst retaining similar margins.
Higher inflation may put pressure on the Bank of England to increase interest rates, which may in turn result in higher costs of borrowing for businesses and individual. This could have a knock-on effect of “cooling off” the housing market as mortgage rates increase. Whilst this is potentially bad news for current property owners, it may allow first-time-buyers easier access to the housing ladder by reducing the cost of their purchase.
Pensions and Investments
Over the short-term, valuations of pensions and investments are likely to fluctuate. As most investors have a diversified mix of global holdings they will see an effective improvement in overseas valuations because of the relative price of sterling.
As is always the case in times of market turmoil, these events tend to be short-term, and the longer term argument for market-based investments continues to hold up.
Conclusion
Although we can attempt to predict the outcome of Brexit, it remains to be seen what the actual economic outlook is for the UK. We continue to monitor the outlook and will update our clients over the coming weeks and months.
