What does Brexit mean for my Finances?

As the likelihood of a no-deal Brexit becomes greater, with a last push for the EU and UK to reach a post-Brexit trade deal before 31st of December, there are certain predictions that can be made about the effect this outcome may have.

These include border checks and taxes on goods travelling between the two areas, which in turn could mean higher prices in shops and delays to products arriving on our shelves. But what will it mean for personal finances? 

 Interest rates 

Although interest rates have remained low in the past few years, March 2020 saw the official Bank rate, set each month by the Bank of England, drop dramatically from 0.75% to 0.1%. However, the Covid-19 vaccine rollout has improved the outlook slightly, according to Ruth Gregory, senior economist at the consultancy Capital Economics:  

 “It reduces the need for the Bank of England to expand quantitative easing (QE) further. (QE involves the Bank printing money to buy bonds – a programme that has already injected £895bn into the UK economy.) And we don’t think that the Bank will need to turn to negative interest rates. In fact, we think that the Bank will keep interest rates on hold at 0.1% for the next four years.” 

 House prices 

Covid-19 and Brexit are both huge factors affecting the economy in the UK, and it is difficult to totally divorce one from the other. Some believe the effects of the pandemic will have a far greater impact on property prices than Brexit*:  

 “While coronavirus caused the housing market to shut down earlier this year, pent-up demand following the lockdown plus a stamp duty holiday have sent prices to a new all-time high. House prices rose by 0.9% between October and November, according to Nationwide building society, taking the average price to £229,721. This puts the annual growth rate at 6.5%, the highest since January 2015.” 

 Brexit’s effect on house prices will rely more on the Prime Minister’s ability to agree a trade deal with his European counterparts. According to chief economist Yael Selfin from KPMG the UK housing market is at a turning point: “On the one hand, record low interest rates and relatively fair valuations in most regions should support prices, but on the other hand, a steep rise in unemployment could change that.  

 “If you add Brexit to the mix, any significant deterioration in the economic environment next year, as a result of an unfavorable deal and a significant rise in trade frictions, could cause another dip in GDP and the housing market.”   

The pound 

In the immediate wake of the Brexit vote in 2016, the pound lost value against most currencies. Covid-19 has caused an even greater dip, as in mid-March, it hit a 35-year low against the US dollar. Unlike with interest rates, the vaccine being rolled out early by the UK is having less of an effect than the potential of a no-deal Brexit.  

Carl Hasty, chief executive at Smart Currency Exchange, says: “It’s certainly likely that a deal will initially push the pound higher against the dollar and the euro. We just don’t know how far or for how long. The referendum in 2016 pushed sterling down by at least 10% long term, and it is possible that no deal might have a similar effect.” 

Tom Arnold, director of the specialist consultancy Currency Index, says that there is one conclusion to be drawn from the years since the referendum: “Any time there is any loss of certainty, the pound crashes – Theresa May’s election disaster being the most obvious example.” 

If you want to know more about how your personal finances could be affected or talk to a financial adviser about your options, please don’t hesitate to get in touch over email enquiries@gpfm.co.uk or call 01992500261. Our offices will close for the Christmas period on Thursday 24 December and will re-open on Monday 4 January.  

This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested. 

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