Where you live could decide your post-Brexit financial situation

Whichever way you voted in that now infamous referendum, few people either side of the divide question Brexit will fundamentally affect us. That, after all, was the whole point.

As the EU divorce approaches, it’s becoming plain few aspects of our everyday lives will remain untouched.

And when it comes to our finances, heavily spun stories of imminent disaster or rapidly realised gains abound.

The truth about how the split from Brussels will really affect us remains frustratingly obscure. Meanwhile businesses and industries of all sizes, types and structures are ploughing time, money and resources into Brexit-proofing themselves.

Clear as mud

“Predicting which regions are going to fare the best after Brexit is no easy feat. One view might come from the government’s own EU Exit Analysis from January this year, which pointed to the North East, the West Midlands, and Northern Ireland as being the worst affected,” says Mike Smith, director at business insolvency firm Companydebt.com.

“If this is correct, it points to the fact that the very areas of the UK which voted leave in June 2016 are likely to be the ones hardest hit.

“The Midlands, Wales, and the North East are at particular risk due to greater dependency on EU markets for their trade than London, the South-East or Scotland.”

But another quite different view comes from the London School of Economics (LSE). According to its Centre for Economic Performance report – Brexit, Trade and the Economic Impacts on UK Cities – cities with high levels of employment in knowledge-intensive industries will be hit hardest.

“This places the biggest losers in the South East, London and the commuter belt,” Smith adds.

In light of the uncertainty, consumers are being urged to make their personal affairs as robust as possible to ensure they can weather the decoupling storm by paying off debts, building savings, cutting costs and fixing interest rates wherever possible.

But there are many aspects of our money matters that are fundamentally influenced by where and how we live, not least security of income and jobs.

Here’s what your location could mean for your post-Brexit financial future.

Housing

According to KPMG’s latest Economic Outlook Report, the UK economy is set for modest growth if a positive Brexit deal can be reached with the EU. It believes UK GDP will have grown 1.3 per cent this year and 1.4 per cent next year – the lowest rate of growth since 2008 and 2009.

If we crash out with a disorderly Brexit, KPMG predicts a rapid slowing of growth to 0.6 per cent in 2019 and 0.4 per cent in 2020.

This kind of risk and uncertainty will probably make the Bank of England’s Monetary Policy Committee cautious about raising interest rates and we may not see another rise – with its direct impact on the cost of borrowing and savings earnings – until the end of next year at the earliest. Wherever we live, the good news is the cost of mortgages isn’t likely to increase any time soon.

Meanwhile the housing market, which many Brits use as a key measure of national, regional, and personal financial health, looks ripe for a rebalance.

KPMG UK predicts house price growth will slow from 4.5 per cent last year to 2.6 per cent this, 2.0 per cent next year, and 1.6 per cent in 2020. High price levels, uncertainty around the future economic outlook and rising interest rates are expected to take their toll in London and the South East especially. House prices in the capital are expected to fall 0.7 per cent next year.

Across the UK, the housing market’s strongest growth is expected in regions with lower valuation pressures, such as Scotland, where prices could rise 4.9 per cent this year. By comparison, the housing market in London will continue to struggle, with gradual price falls until 2021.

Debt

Whatever happens next, those with the largest savings buffer and lowest levels of debt will fare best. But personal debt has been rising since the 2008-09 financial crisis and is now higher than at any time in modern UK history, according to debt charities.

However the same debt stress isn’t being felt equally across the country. Data from the Office for National Statistics show the proportion of households facing higher levels of “problem” debt – borrowing people struggle to manage or pay off – is highest in the East Midlands, where 7.5 per cent of households struggle. The region is closely followed by London, at 7.3 per cent.

Stoke-on-Trent – a former industrial centre and Brexit heartland – has the highest level of personal insolvency in the country.

At the other end of the debt spectrum, Scotland has the lowest level of problem debt – which is an issue for around 3.3 per cent of households – followed by the England’s South East, at 3.9 per cent.

Work & income

Employers will still have to honour the National Minimum Wage and National Living Wage after we leave the EU, but the chances of a pay rise or even a boost to paid overtime any time soon appear unlikely until the dust has settled.

With inflation hitting a surprise six-month high of 2.7 per cent this week, households have had the long squeeze on their spending tighten further. A lot of that is down to the higher cost of goods coming into the country thanks to the low value of the pound, and that isn’t likely to change any time soon either.

Complex analysis at the LSE determined other factors – such as the global oil price – aside, the Brexit vote increased inflation by 1.7 percentage points in the year following the referendum.

Inflation isn’t a problem for consumers if wages grow at the same or a greater rate – but they’re not. Uncertainty among businesses means pay rises are few and far between, so the “real” value of wages is continuing to fall.

Cutting discretionary spending on non-essentials may be the only way to free up extra cash for a while.

In the meantime, there’s the small matter of ensuring your salary keeps coming in.

Assessing the likely effect of a soft, hard or any other type of Brexit on the economy is a quagmire dripping with political agenda and wishful thinking on both sides, but the industries that could be particularly affected by Brexit include financial services, manufacturing, tourism and the automotive industry, all of which have regional focal points.

In London, for example – the UK’s financial services hub – 13 per cent of adults are seriously considering a move overseas in the next two years for work, according to research by ADP.

But the impending departure from Europe is also encouraging businesses to work harder on retaining staff.

Research by the Chartered Institute for Personnel and Development (CIPD) shows, while businesses have already become cautious over recruitment, they also believe the coming few years will bring tougher competition for skilled and senior employees. In response they are “placing greater emphasis on developing existing staff”.

In other words, and regardless of where you live, there may yet be a silver lining around the menacing Brexit cloud none of us voted for.