Reality Check: The impact of Britain leaving the EU

//Reality Check: The impact of Britain leaving the EU

brexit1 Reality Check: The impact of Britain leaving the EUWhichever way you voted in the referendum on June 23, the impact of Britain voting to leave the EU is still reverberating and while it’s still very early days, we understand that some people may be concerned about both the short and long term impact on their finances. The key as always is to study the facts and leave the scaremongers behind.

Stock markets

Prior to June 23 the stock market had rallied and a Remain vote was expected and had been factored in by many fund managers (as well as the bookies), so when a Leave result came in overnight it was no surprise that the stock market reacted negatively to the news.

Despite this, Britain’s premier stock index, the FTSE 100, has since gathered pace and has reached 11-month highs. While analysts on Monday 11 July credited the FTSE’s rise to the news Theresa May had succeeded David Cameron as Prime Minister, the truth is the index has been surging after the Brexit vote. The blue-chip index has gained nearly 16 percent since its post-Brexit low on June 24 and is up more than 20 percent from February.

Most recently, on the 14 July, the FTSE 100 was caught on the hop after the Bank of England’s Monetary Policy Committee unexpectedly voted against any change in interest rates from their historic low of 0.5 per cent. Shortly after the announcement the FTSE 100 fell marginally into the red, down by 3.0 points at 6,668.8, but soon turned up again – trading up 8 points at 6,677.7.1 by 4pm that day and still closing higher than the days following the Brexit announcement.
 

Trade deals with other countries may be easier to win

Simply because we can just negotiate and agree, we do not need a consensus among 28 quarrelling, disparate countries. We traded with the rest of the world, and the EU, before the EU was invented and can do so again.

Non-EU countries like Norway, Iceland and Switzerland have their own trade agreements and are doing just fine. The UK will also be able to re-negotiate trading terms with the EU and non-EU countries alike. The US, India, Australia, New Zealand, South Korea and Mexico have already expressed interest in getting deals done fast.

“In the long term, Brexit will herald a major growth-boosting period, as the UK breaks free of the over-mighty EU with its protectionist mindset and establishes free trade and intelligent regulation aimed at UK economic interests,” said Patrick Minford, Professor of Applied Economics at Cardiff Business School.
 

Currency

As anticipated following the Leave vote, the pound has devalued.

The devaluing of the pound doesn’t necessarily need to be seen as doom and gloom. Yes, the price of importing goods into the UK will increase, but this will reduce our spending on imports and instead we will be more likely to buy domestic goods.

The price of UK exports will be lower in foreign currencies. Foreign buyers need less currency to buy the same quantity of UK goods.  Therefore a weak pound means UK exporters can sell their goods cheaper and / or increase their profit margins. A weak Pound should help British manufacturers and exporters. This will increase the competitiveness of UK exports and should cause an increase in demand for UK exports.
 

Inflation

A weak currency can increase the chances of inflation, as we effectively purchase fewer goods and services than we did pre-Brexit. How this will play out is unknown at this stage, but it will be monitored closely by the Government and the Bank of England.
 

Interest rates

On 4 August, the Bank’s monetary policy committee decided to cut interest rates to 0.25 per cent. This is good for people borrowing but less positive for people trying to save. Many of those with savings or loans, in particular a mortgage, may be affected. But you will not see huge differences. Firstly, because the change is so small. Secondly, because banks were certain it was coming and many have already adjusted savings and lending rates. For savers, the key is to ditch poor- paying accounts. Look at the top current account – some pay 3-5% compared to 1%ish on standard savings accounts.

Conclusion

As independent financial advisers we are positive. We are committed and spend a great deal of time and effort in rigorously researching and advising on solutions where we believe the manager clearly adds value and has the ability to navigate financial markets, both good and bad. True Bearing follows a multi asset investment philosophy, and a benefit of this is reduced fluctuations in values. Our fund managers built some Brexit protection into their portfolios.

IFAs should always focus on and advise consumers to invest for the longer term, that should not change, nor does this event to leave, alter that remit. There are always considerations to alter the strategy of investment because of events that affect markets. This is why advice and understanding precedes informed decision-making.

When it comes to investments the mantra remains; past performance is not a guide to future returns, and in a post Brexit UK this is probably more relevant than ever and this doesn’t just apply to investments.

Time is now needed to allow things to settle down and to create a new norm. Keep calm and carry on, as the saying goes!

In time this so called cataclysmic event will merely be a small ripple in the sea of history.

2017-05-10T14:28:26+00:00 July 21st, 2016|Categories: Talking Point|