Brexit one year on: how your finances have changed

Friday marked the first anniversary since the UK decided it was going to ditch the European Union.

It’s been a turbulent time to say the least, and the political earthquake which hit the UK last summer continues to impact our daily lives, including our finances.

The severity of the pound’s fall after the Brexit vote has already begun to plunder our wallets, especially now inflation has picked up the pace, which is making food, fuel and energy more expensive. The value of the pound stood at $1.49 on the day before the 23 June referendum, and now sits closer to $1.27 after zigzagging violently throughout the year.

While the weakened currency is arguably the only direct impact of Brexit so far, and means your money won’t stretch as far when you go abroad, there has been a raft of knock-on effects.

Investments

The market has been shaken up by the political drama, but not in the way many would expect. “Initially, we were told Brexit would be a catastrophe, but if you look at the market’s reaction, it’s been anything but,” says Vinay Sharma, senior trader at Ayondo Markets.

The FTSE 100 has rallied an impressive 20 per cent over the year, and even the UK-focused FTSE 250 index is up 14 per cent as the UK economy has stayed fairly resilient. However, market commentators think FTSE 250 firms will start to struggle as the reality of the divorce finally dawns.

Julian Howard, who heads up the multi-asset team at Global Asset Management, says the UK economy is in for a rough ride as consumers feel even more hard-pressed and business confidence continues to shift down a gear, which will hurt investments in British companies.

Savings and pensions

The year has not been kind to savers, who see no end to this barren interest rate environment, particularly after the Bank of England shaved the rate to a record low in order to fend off a recession.

Despite inflation heating up, the central bank is only showing the faintest signs that it will lift interest rates soon, which is a blow for savers who continue to get next to nothing in the way of a return.

However, comparison website Money.co.uk points out that savings rates have crept up slightly thanks to the challenger banks, with the best two-year fixed rate account currently paying interest of two per cent.

Many UK pension funds have been supercharged by the fall in sterling because a large portion of the investments are allocated to overseas assets. Jason Hollands, managing director of wealth manager Towry, warns that the gains seen over the past 12 months could be a one-off, adding: “if sterling starts to recover then the factors which worked for you this year could then work against you.”

It’s been a tumultuous time for annuities, as gilt yields – which determine the rate of income you get in retirement – dropped to record lows after Brexit. Annuity rates have since recovered but still sit at historically low levels.

There could also be a strain on final salary schemes as Brexit-related anxiety puts employers under the cosh.

Energy bills

Five of the big six suppliers have hiked their energy prices since the referendum, with the latest figures from Ofgem showing a six per cent jump in the average variable tariff between June 2016 and April 2017 to stand at £1,129 per year.

But Nick Turton, external affairs director at the Energy Institute, says it’s difficult to say categorically whether Brexit has influenced this. The UK imports 38 per cent of its gas and five per cent of its electricity from Europe, but Turton says the exchange rate is only one factor affecting the cost of imports, as gas demand and commodity prices also come into play.

“Our members are concerned that trade in energy needs to be a priority at the negotiating table in Brussels if we’re to avoid uncertainties that could lead to high or volatile costs in future.”

Property

House price growth has shrunk over the course of the year, with figures from Nationwide showing the pace of growth dipped between March, April and May – marking the worst three-month run since 2009. In May, the average UK property was priced at £208,711, up just 1.8 per cent since June 2016.

While the number of people buying and selling houses tailed off immediately after the referendum, activity was already falling in light of the stamp duty hike on second homes. The slowdown means houses are becoming slightly more affordable, which is good news if you’re looking to buy a home, particularly bearing in mind mortgage rates plummeted to record lows.

But it’s bad news for landlords, with rents falling for the first time since 2009. Average monthly rents in London dropped to £1,502 last month from the £1,548 recorded in May 2016 as the effects of a Brexit slump begin to surface.

Hannah Maundrell from Money.co.uk points out that figures on wage growth, inflation, and house prices are all based on averages, meaning how you’re affected really depends on what you’re spending your money on.

“Don’t waste time stressing about what Brexit might mean for your finances, focus on getting on top of them instead so you’re in the best possible place to enjoy whatever happens down the line.”

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