Brexit Financial Impact- 3 key areas of your Finances

24 Jun 2016 | COMMENTS: 0 | Author: Carlo Ruggiero | General

Brexit Stock Crash

It has happened. Despite the markets and pollsters last night predicted a slight edge towards remain, the UK has voted to leave the EU.

Now we are in a post-Brexit world, there is uncertainty around the markets, currency and other macro fears. But how does this impact you, the individual, and your finances? Below we have  key areas to monitor as the situation develops.

Three areas to keep your eye on:

Currency

At the time of writing the pound has fallen heavily, to lowest levels since 85. The main reason is that many investors have been betting that we would vote to stay in and they have lost that bet. They will need to sell their holdings of sterling before it falls too far. Also if the economy is damaged by leaving the EU the pound will be less attractive to hold.

The UK also needs to attract large amounts of foreign investment to pay for its imports and the country may now be a less attractive place to invest in, with its access to the rest of the EU in some doubt.

That would suggest that demand for sterling will be weaker as fewer businesses need the pound to buy assets in the UK, although it might mean UK interest rates will have to rise to increase the attractiveness of holding sterling.

But its not all doom and gloom. As the guys the guys over at Motley Fool point out,

“…purely from an accounting perspective, a Brexit is not necessarily bad news for the UK stock market. That’s because UK companies earn around three-quarters of their money from overseas. To a large extent, this insulates their earnings from domestic troubles such as any Brexit-provoked recession (although Europe could well be dragged down with us in that scenario). It also has an immediately helpful consequence in currency terms, particularly versus the dollar. Companies that earn their money in dollars are going to find those dollars worth a lot more following the devaluation of our currency. This is one reason why the FTSE 100 as I write has fallen less steeply than, for instance, the European markets – despite some major FTSE constituents having fallen 20% or more.
Even if they earn less, the market knows those earnings will be worth more once brought back home.”

Stock markets

Britain’s exit from the European Union shocked global markets and unleashed uncertainty. Investors began fleeing risky assets and turned to the dollar and the yen.

Wherever you stand politically, you will still see the same frightening blanket coverage of turmoil in the financial markets, and famous companies priced down 20% or more.

The turmoil in the markets may be a taste of worse to come, or it may prove to be a great buying opportunity. Most investors may benefit from being calm and not panicking, because rash responses are unlikely to be the best responses.

Few expect that Britain’s departure from Europe will set off a full financial crisis like the one seen after the collapse of the investment banking giant Lehman Brothers in 2008. But no one knows enough to rule that out, either. The world has never been here before.

However, less than an hour after the markets opened in London, Mark J. Carney, the governor of the Bank of England, stood in front of television cameras to announce that the central bank had earmarked 250 billion pounds, about $344 billion, to unleash as needed for stability. Markets took some solace, paring back their losses for the day.

After instantly dropping nearly 16 percent at the start of trading, British stocks recovered somewhat, down around 4.5 percent by midday in London. Shares in Germany were off more than 7 percent, while the broader European stock market dropped more than 9 percent.

Whatever happens, a long, confusing period now unfolding seems certain to yank Europe back into acute anxiety just as it seemed to be finally recovering from a punishing economic downturn, one that had thrust Greece and Spain into veritable depressions while erasing years of wealth across the Continent.

Housing market

As has been reported in the BBC amongst others, in the run-up to the referendum there were signs the housing market, especially in London and south-east England, was slowing down, as buyers and especially rich foreign purchasers waited to see which way the result went.

Now the UK has voted to leave that trend is likely to become much firmer – foreign buyers might be reluctant to invest the huge sums needed to buy prime London property when they don’t know what the economic and political future holds.

That might affect a few millionaires to start with, but what happens in central London tends to set the trend for house prices across the country and flow out – across the rest of the capital and south-east England, to all corners of the country, with many feeling this could be start of a burst housing bubble.

That may be no bad thing depending on your circumstances – house prices are at a high point and many people are unable to get a foot on the housing ladder. However, many others feel wealthy because of the value of their home and falling house prices can hit their spending and economic growth. There is also the fear of negative equity for those who have just bought a house.

If you have fears about Brexit, and are unsure about your savings, pensions & investments, get financial advice from a fully qualified FA now

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