What now for your money?

When the biggest political and economic bombshell of our lives landed last summer, the financial world went mute, battened down the hatches and sat in the gloom drawing up plans in the quicksand of uncertainty that was left behind.

This week, as the all-important letter was handed in like the resignation notice from a promising middle manager, it found its voice among the growing clarity of hard exits, the diminishing chances of remaining in the European Economic Area EEA and the expectations of either a free trade agreement (FTA) or reversion to World Trade Organisation (WTO) rules.

The acronym-heavy focus on macro economics automatically excludes those of us who aren’t economists, analysts or fund managers from trying to work out what happens next to the rest of us.

So now that the inevitability of it all has hit home, and they’ve had 9 months to think about it, we ask the experts to share their predictions on what a newly independent UK means for our personal finances.

Pounds and pence

Whichever way you voted, there’s no getting away from the fact that after an initial blip, the UK has fared better than many expected since the referendum vote. Indeed, growth forecasts have been upgraded twice by the Bank of England since August.

“The Brexit negotiations do though inevitably create some uncertainty over the future and the nature of the deal the UK may be able to strike with the rest of the EU, or even whether a deal can be reached at all,” says Richard Stone, Chief Executive of The Share Centre.

Sterling will likely continue to be weak. If the Bank of England believes the UK economy needs support during the transition out of the EU it will likely be tempted to keep interest rates lower for longer, or to make the pace of any rises slower.

"This will help keep the value of Sterling down, especially against the US Dollar where further interest rate rises are viewed as inevitable following the latest increase earlier this month.

Personal prosperity

“Inflation is returning to the economy, in part as a function of weaker Sterling increasing import prices. A Bank of England looking to support the UK Economy through an accommodative monetary policy may also therefore see inflation rise higher than might otherwise be the case.”

Of course, for those with mortgages, loans and other debt, a longer than expected period of low interest rates is no bad thing.

And with interest rates on in-credit balances also lower than the rate of inflation, more people are likely to invest their money rather than keep it in cash. That in turn should help support the prices of non-cash assets – namely shares and property.

Investing

But that doesn’t mean there are clear stock winners and losers emerging just yet, and because few of the retail investor-facing funds (or indeed investors themselves) operate with a short-term view, the overwhelming message coming from UK-orientated fund managers at least is don’t do anything rash, this is business as usual, nobody panic.

“Essentially I’m indifferent to the triggering of Article 50. Our investment process starts with stock selection, says Harry Nimmo, Manager, Standard Life UK Smaller Companies Investment Trust.

"Our focus is on companies exhibiting growth, quality, earnings visibility and business momentum. History has demonstrated that our kind of lower risk growth-orientated companies can generally flourish regardless of the direction of macro-economic change.”

However, Stephen Macklow-Smith, Manager, JPMorgan European Investment is a little more specific.

“A huge amount depends on the type of agreement that can be reached. In the medium-term, however, companies are likely to take a precautionary approach to ensure they are not blindsided by any collapse in negotiations.

“We have already seen, for instance, signs that banks are beefing up their presence in the Eurozone which, in the short-term, will add modestly to their costs relative to the situation without the uncertainty of the negotiations.

“The bottom line is that if no deal is possible, that will have a negative impact on growth in both the UK and the EU. Although the impact will be that much less for the EU given that they will all remain members of the Single Market and will continue to enjoy an uninterrupted trade relationship with other countries outside the EU which have an existing trade agreement.

“We continue to find a number of opportunities in the more cyclical areas of the stock market and believe that as global reflation is increasingly evident, the tailwinds for growth will improve and earnings in more cyclical sectors will benefit.”

Property

While the argument for a continued rise in the value of assets like property has already been made, others – particularly those opposed to building on green belt land - have suggested that leaving the EU will mean fewer migrants, and therefore less pressure on the housing stock.

However, with the latest figures for England alone suggesting we need to build 227,000 homes a year until 2024 - 84,000 of which are as a result of migration from Europe and across the globe, it’s not a claim that John Perry of the Council of Mortgage Lenders has much time for however.

“The government already seems to accept that there will be continuing access for professional workers, including doctors and nurses, although these account for fewer than one in five EU migrants. There is also likely to be some sort of programme for seasonal farm workers. However, in the middle, there is a broad range of skilled and semi-skilled jobs that still have to be filled – not least the 9% of building workers from the EU, for example.

The lobby group Migration Watch thinks a hard Brexit could cut net EU migration by 100,000 per year. Against that, the think tank Global Futures suggests the fall might only be 52,000.

“But, even with the Migration Watch number, if figures for both non-EU migration and UK nationals moving abroad stayed the same, net migration would still be about 173,000 annually, still slightly ahead of what is assumed in the household projections.

“Migrants are overwhelmingly concentrated in the private rented sector,” Perry adds. “So the impact of any fall in people coming from the EU will be far greater on this sector than on social housing. This is partly because, although EU nationals may qualify for social housing, they account for only 4% of new lettings in a typical year.

Crucially, the demand for workers will still be there post-Brexit. “And if labour does not come from Europe, either it will come from somewhere else or … will move abroad,” he says.

“Brexit does not mean that Britain can avoid hard choices, any more than it means that we can stop building new homes.”