As Brexit was such a surprise to the mainstream financial community, and because it is so unprecedented, the financial implications are not clear to specialists, let alone to savers in general. That has led many to seek ‘Brexit Advice’, in other words, financial advice specifically focused on planning, saving and investing post-Brexit.
We can’t say for certain what will happen moving forward, but let’s look at some of the possible effects and what they would mean for your finances.
“The world did not fall apart!”
Many commentators (especially those who were pro-Brexit) have pointed out that, in spite of the warnings of the Remain camp, Britain has not been plunged into a catastrophic crisis. That is true in the sense that there has not been a 2008-style crash, which was seen by some as a possibility. But markets and Sterling have suffered significantly, and economic data point towards a recession.
Now, even though a sudden global crisis wasn’t triggered, it is still possible for the British economy to suffer substantially in the coming years. After all, Brexit itself hasn’t actually occurred. And some of the likely impacts, such as the transfer of jobs from the City to financial centres on the continent, are naturally going to take years. That doesn’t make them any less real, though.
So what would a weaker British economy mean?
- UK-based pensions will become riskier, both because lower interest rates hurt their returns and because their sponsors may be weakened.
- Property values may cool off together with financial jobs in London.
- In other areas of the country, the overall weaker economy could also put pressure on property prices. Strong curbs on immigration have been promised, but on the other hand they depend on the post-Brexit agreement with the EU. If they do come into effect, they would also reduce housing demand and thus lower property prices.
- Sterling is likely to remain at a lower value against other currencies, making overseas holidays and retirement more expensive.
- UK stocks may suffer. Financial firms and those that depend highly on trade with the EU are likely to suffer the most, whereas those that export to, or have operations in, the US and Asia may benefit from the cheaper Pound.
And what does that mean for your investments?
More than ever, it is important to keep your options open.
For example, all else equal, a pension scheme that allows you to manage your investments and invest internationally is preferable to one that keeps you trapped into being exposed to UK assets that could suffer – even if you believe in a recovery and choose to stay invested in UK assets for the time being.
Property values tend to adjust slowly. People resist accepting that their property is less valuable than it was until very recently because conditions have changed. So if you were thinking of selling your UK property and can get a reasonable price, it might be wise to sell ahead of the pack. On the other hand, if you are looking to buy UK property, it might make sense if you find a bargain, or if you can make the best of rock-bottom interest rates to get a good mortgage. But otherwise, it might be best to wait, or to consider other markets that are attractive and simply don’t have the Brexit risk.
As for stocks and Sterling, they have already suffered and so the wager is whether they will suffer more or less than the market has already ‘priced-in’. That is extremely hard to predict and depends on where the market is day-to-day.
But it is reasonable to say that British assets now have a risk hanging over them that they did not have before. It could turn out OK – and those who bet now on a post-Brexit Britain will make money – or things could go very sour. If a large proportion of your assets are in the UK and you have a more international lifestyle – you are an expat or consider retiring abroad – regardless of forecasts, it may make sense to diversify your investments to stay safe.
In conclusion, Brexit is unprecedented and so forecasts are very uncertain, but generally revolve around Britain’s economy being weaker. So it is important to keep your options open by having flexible investment structures and, if you are overly exposed to UK assets, to consider diversifying to protect yourself if the pessimists turn out to be right.