Brexit has cast the nation into gloom and confusion, yet so far the impact on our wallets has been minimal. The economy is growing, unemployment is at a record low, earnings are rising faster than inflation and the FTSE 100 stands firm. Only the pound has suffered, with sterling acting as a shock absorber.
That could all change, as even the Government admits we are now in the midst of a political crisis. Here are three ways Brexit could start to hurt where it matters.
1. Pricier holidays
The pound has been the best performing currency this year, as hopes rose of some kind of Brexit fix. That recovery could now be in jeopardy. At the time of writing, £1 currently buys you €1.17. Some currency analysts reckon £1 could fall to just €1 if we end up with a messy no-deal in the weeks ahead. In that case, your holiday in the sun could suddenly look a lot more expensive.
It may be worth advance ordering at least some of your currency now, just in case.
It could be prudent buy a decent travel insurance policy, too, as the Foreign and Commonwealth Office (FCO) has warned that the European Health Insurance Card (EHIC) may not apply in a no-deal Brexit. If so, you would be responsible for the cost of any emergency medical treatment, no matter how expensive. Actually, in my view, it’s a good idea to have decent travel cover anyway.
2. Prices could rise
Second-guessing Brexit is a fool’s game. Nobody knows what will happen next, least of all the Government and MPs, who are supposed to be in control. Blockaded ports? Food and medicine shortages? Empty supermarket shelves? Higher energy prices because of greater friction in electricity trading?
A plunging pound would drive up the cost of imports, increasing the price of everything from avocados to a new Renault Zoe. That’s assuming any imports get through in the first place.
Not all prices will rise: house prices could fall. The property market has been struggling in London for some time, and if things get stickier the malaise could spread to the rest of the UK. However, UK property has been surprisingly resilient so far.
3. Low interest rates for longer
As if a decade of low interest rates was not enough, further Brexit uncertainty is likely to drag out the agony, as the Bank of England isn’t going to start tightening until we have a clearer picture of what lies ahead.
This could be good news for those who have large mortgages but yet more bad news for savers, who would continue to get dismal returns on cash.
However, low interest rates may be good news for the FTSE 100, as they underpin a strong economy. Companies listed on the index generate three-quarters of their revenues overseas, and a bad Brexit means a weaker pound, which will drive up the value of those foreign earnings when converted back into sterling.
The FTSE 100 could therefore win both ways. If Brexit is cleared up, it could enjoy the mother of all relief rallies. If it drags on, the pound will come to its rescue.
So that’s one Brexit positive at least.
By Harvey Jones
Source: Yahoo Finance UK