How Brexit will Affect Your Money: Investments, Currency and More
Brexit or British exit from the European Union that happened this June has caused a real turmoil – and not only because this is the second case of the departure from the EU. The only other country that did this was Greenland – they left the EU predecessor, the European Economic Community (EEC), back in 1985. It seems that things have been going well for them since they left, but unfortunately, predictions for the future of the British economy are (in most cases) not so bright.
We are already witnessing the pound fall – the lowest in decades, and much more consequences of Brexit are anticipated. Since the beginning of 2016, the pound has fallen more than 4 percent against the US dollar, and 6 percent against the Euro. However, those who supported Brexit believe there’s no reason to fear. They voted for departure for a variety of reasons and one of them was boosting the British economy. Since they have already chosen not to use the EU currency, for them, this has been just another step closer to the British economic and political sovereignty.
On the other hand, there are several doomsday scenarios, including the economic recession and high unemployment rate. Although Brexit supporters claim that being free from EU laws and regulations will strengthen the economy and allow it to grow, many suggest that the pound will continue to fall and thousands of jobs will be lost (especially in the manufacturing industry and banking sector). Months before the referendum, giants such as Nestlé, Hyundai and Ford (and 30 percent of surveyed companies) said that they will be scaling back their operations or leave the UK if it comes to Brexit.
So, how can we know which of these opinions is correct and which consequences will Brexit have on the British economy? For now, we can only make predictions, mostly based on the dramatic fall of the pound. Most people want to know how this will affect their daily lives – their mortgages, holidays, pensions and investments. However, these questions also trouble business owners, large investors and people who are earning their money thanks to the forex (currency) trade.
We already mentioned that the pound sterling has fallen significantly since the December 2015, but economists predict that interest rates will be stable until the middle of 2017. To be precise, the pound fell to £1.315 on June 27 – which is the lowest level since the year 1985 (10 percent in value). Most currency analysts’ predictions for the end of 2016 are that the pound will fall to approximately $1.25 – $1.30.
In an interview with The Telegraph, Peter O’Flanagan, the head of foreign exchange at Clear Treasury, claims that “UK trade will be affected in the short term, because we will have to renegotiate trade deals not only with EU countries but with other countries where we rely on EU trade deals. This will take time. Everything will stabilize in due course, but there could be short-term pain.”
How will this affect people’s lives and trade? Some experts claim that the UK will become a cheaper destination for foreigners and this will boost the tourism. However, UK residents who are travelling abroad may not be so happy. As GPS has fallen, they will pay more for foreign currencies, so it’s advised to travel to destinations where the pound is still strong. Also, Brexit will likely affect lots of aspects of people’s lives, from mortgages, pensions, investments, to the pricing of the export products.
Brexit supporters claim that the British economy is fundamentally strong and there’s no reason to worry. Their arguments are that less control over the UK trade policy will bring more long-term benefits that will outweigh negative short-term effects. On the other hand, the UK Treasury estimates that being in the EU was the factor that had a strong and positive effect on trade and leaving the EU may make a negative impact. Around 90 percent of British trade is done in partnership with EU companies.
Who should we trust? It seems that we’ll need to wait for a while, before drawing any final conclusions. It’s important to know that a majority of people can’t influence the outcome now, after Brexit already happened. However, there is one thing you can do if your income depends on currency trade. Have in mind one thing that most forex experts agreed on: that most traders will likely invest in US dollar now.