What happens next for the Brits?
By Dave Thrifty
Since British people woke up to the news that their country has voted to leave the European Union, there has been turmoil in financial markets – the pound hit a 30-year low and the FTSE dropped almost 10 percent Though the Brexit process will probably take at least two years (and the UK will remain a full member of the EU in the meantime), some aspects of the decision have affected British people straight away.
1. The pound in your pocket
There is inevitably going to be a period of uncertainty and turmoil. As the referendum result emerged, the pound fell 10% against the US dollar on the foreign exchange markets and 7% against the Euro. If this persists UK imports, such as oil (affecting domestic fuel prices and petrol), foreign cars, coffee, bananas and clothing, will all cost more. Overall, then, the general price level keeps rising meaning that your income will not stretch quite so far.
If you’re holidaying here in Thailand over the coming months and haven’t bought your currency yet, the weaker pound means you’ll also now pay more.
2. Your job and income
A weak pound affects industry as well and so may impact on jobs. Company costs will rise if they import their raw materials and most firms will be hit by higher fuel prices. But the fall in sterling makes it easier for exporters to sell their goods and services abroad. So some jobs and wages may be more at risk, while recruitment rises in other areas.
Longer term, economists have been unanimous in predicting that UK growth is likely to be lower outside the EU than it would have been inside. Businesses do not like uncertainty, so they may put off investing in new plant, machinery and jobs, as being outside the EU trading bloc may make trading with other countries more difficult and some firms may decide to quit the UK. This could mean that jobs and wages will be lower than they might otherwise have been, though not necessarily lower than today.
Before the referendum the then chancellor threatened a post-Brexit emergency Budget that would cut public spending and raise taxes. This was seen as an unlikely response since it would have further depressed the UK economy just when it is reeling with uncertainty and MPs across all parties were quick to say they would not support such measures. Mrs. May has not acted on it.
3. Your savings and pensions
Uncertainty while markets adjust and firms decide how to respond means the UK stock market will remain volatile for some time. Anyone who has recently retired and opted to take an income using drawdown (periodic cashing in of a pension fund still invested in the stock market) may have to take tough decisions about drawing less income now or risk running out of retirement savings later on. Savers have suffered since the global financial crisis of 2008 with rock-bottom interest rates. It’s unclear what might happen to these. On the one hand, rising consumer prices may push interest rates up; and credit rating agencies have said they will downgrade Government debt which means the government would have to raise interest rates to persuade savers to buy its debt. But, if the economy struggles to grow, the Bank of England might embark on new rounds of quantitative easing to keep interest rates low to encourage economic growth.
4. Your home and mortgage if you still own one in GB
While savers would welcome a rise in interest rates, this would increase mortgage repayments for borrowers and could even trigger repossessions. The IMF has predicted that UK house prices could drop sharply post-Brexit. You might be concerned about that if you are in one of the six out of ten UK households that own their own home. But this could be good news for younger generations who have been struggling to afford a home.The uncertainty remains with the Government yet at time of writing to respond to the High Court Brexit ruling.
Whatever their decision all the expats I know just want the pound to strengthen irrespective of in or out of the EU.