Brexit: Bad for your bucks?
With 52% of the voting population of the UK opting for a Brexit back in June 2016 many people aren’t sure what will happen to them, and often more importantly, their finances.
Fears that Brexit would mean large rises in interest rates have actually been proven to be premature. Before June, the government predicted that some mortgages could rise by up to £1,000 a year. In reality, experts are actually expecting some banks to cut their interest rates on borrowing. The Bank of England has suggested banks reduce their interest rates to 0.25%. Some banks are unsure of the idea as it would mean a profit reduction of hundreds of millions of pounds. This, could actually mean the cost of lending falls!
As experts believed a Brexit would cause a rise in the cost of mortgages, they also believed that there would be a sharp drop in house prices. The Treasury maintains that house prices could drop by between 10-18% over the next couple of years, with houses in London being most affected. First time buyers would benefit most as houses become available at lower prices. However for homeowners, this means that their properties will be worth less. Property in London predicted to fall by around £7,500 on average over the next three years.
An expected rise of unemployment relaxes the pressure on wage increases following Brexit . When the leave takes place, The Treasury predicts that wages will be between 2.8-4% lower than current, leaving some workers an average of £800 worse off. The Bank of England predicts that wages will be hit by a massive 2.5% decrease due to reductions in future earnings growth and rising inflation costs as a direct consequence of Brexit.
During Brexit, the ex-Chancellor of the Exchequer, George Osbourne, predicted that there could be a rise in tax, moving the lower rate to 22 pence per pound, and the higher rate to 43 pence per pound. This is a policy which would directly contradict the Conservative Government’s promises at the last election. Since the referendum, and the recent change in Prime Minister, it’s yet to be seen whether this will happen or not.
Currently, state pensions will increase by at least the level of earnings, inflation or 2.5% each year. In June, David Cameron warned that this guaranteed level of increase, or the “triple lock”, could be threatened by Brexit. This could mean that anyone taking out a pension could get less income. However, if this was the case, the Bank of England could decide on a policy of Quantitative Easing (QE), which would ease the cut. It’s hard to fully predict the extent to which Brexit will have on the UK’s economy, with many factors still not defined.
When it comes to investing and shares, the future outside the EU is unpredictable. With share prices typically rising and falling depending on a business’ profits, it’s hard to guess the effect that Brexit will cause. However, it is thought that leaving the EU will mean large exporters will feel the biggest negative effect, with big importers potentially even seeing increased success due to the weaker pound.
If the UK does see very negative consequences with life outside the EU, and slow economic growth, then benefits can be expected to drop. Currently, nearly a third of government spend is on welfare payments. A decrease in treasury funds from a slow economy would mean a lot less to spend on benefits and welfare. At this stage, it is not known the full extent of what will happen in terms of trading agreements and memberships. However, if some experts are to be believed, families could potentially lose up to £3,000 a year.
Unless holidaying within the UK, it’s likely that your holiday will become more expensive. With holidays either priced in Euros or other currencies, and the pound becoming weaker, it’s inevitable that holidays will cost more. The prime minister, estimated that the average 8 day getaway would cost £230 more. Companies such as EasyJet and RyanAir flights are sold in Euros and will also rise in price. However, British Airways has said Brexit wouldn’t affect it’s business or prices.
Mobile phone roaming charges are capped within EU regulations. However, when we leave the EU, the regulations will no longer be mandatory. This means that mobile phone companies could charge higher fees when you’re abroad. Some think that the UK government could decide to adopt the EU regulation as law within the UK.
Only educated assumptions can be made on the exact fate of the economy, the pound has become weaker, affecting exchange rates and the economy.
With Article 50 yet to be invoked and a leave not officially happening for at least two years, some of the changes outlined above may not happen immediately, but instead over a period of time.