When the UK electorate voted to leave the European Union in June 2016’s infamous Brexit referendum, the country was abuzz with speculation about its potential implications. Having now endured years of political indecision, parliamentary scuffles and uncertainty surrounding Brexit, however, many of us are tempted to switch off and ignore the ways in which it could affect our lives.
Nevertheless, now is not the time for complacency. As the October 31 deadline approaches, it is important to think about how the UK’s departure from the EU could affect your financial health.
There are a number of ways in which Brexit could affect your life and financial planning, so we’ve drawn together a brief guide to help you prepare for potential changes.
What is going to happen with Brexit?
Unfortunately, this is a question that nobody can confidently answer. However, there are a number of potential scenarios that could play out. Although the current deadline for Brexit stands at October 31, the UK could be granted an extension if Prime Minister Boris Johnson resigns and is replaced by another politician. Alternatively, Johnson could request an extension to overcome parliamentary impasses.
Whilst many political analysts are not hopeful that Johnson will obtain a satisfactory Brexit deal before the October deadline, there is a chance that he will secure revised terms after returning from the European Council Summit taking place on October 18.
Finally, the UK could come crashing out of the EU without a deal at the end of October. At the moment, it seems very unlikely that parliament will approve this kind of exit. However, there is ongoing speculation that Johnson will manage to go ahead with his plan to exit the EU by the October deadline regardless.
Should we be worried?
There are a number of ways in which Brexit could affect people’s finances. The security of certain jobs and professions could be affected, for example. As we will discuss, property prices, investments, and pensions could also be affected. It is clear to see how a person’s overall financial health could be affected, therefore.
Whilst there is no reason to start panicking, it is a good idea to consider the ways in which you could be affected so that you are prepared for any potential changes to your circumstances.
What is the worst-case scenario?
According to a recent report by the bank of England, a no-deal Brexit would represent the worst-case scenario in regards to the financial health of the UK. Indeed, leaving without a deal could dent the economy, cause a rise in unemployment, and push the country into a recession.
Deal or no deal?
Does it really matter whether the UK exits the EU with a deal or without?
The short answer is yes.
According to Paul Huggins, an Independent Financial Advisor at Huggins Wealth Management, “It matters whether the UK is able to secure a deal or not because less uncertainty equals more stability in the financial world.”
Of course, there are a number of other global factors that could affect the UK’s financial performance in the coming months and years. These include a potential recession in the US and UK, rising political tensions in the Middle East, and trade wars between various countries. Ultimately, it is important to recognise that the financial world has always experienced some degree of volatility and that financial preparation for a range of scenarios has always been a smart move.
What is the potential impact of a no-deal Brexit?
On top of the potential for inflation, economic recession, and rising unemployment rates, a no-deal Brexit could impact the value of investments, decrease house prices, affect access to pensions, and generally impact UK citizens’ personal wealth thanks to a higher cost of living and even potential food shortages. As detailed later in this article, however, these eventualities are unlikely and you should try not to panic.
How will Brexit affect investments?
In the short term, investments could be negatively impacted following Brexit thanks to market volatility. In the long term, however, only two prices really matter to an investor – the price you buy at and the price you sell at. What happens in between really doesn’t matter, and as difficult and unsettling as it can be at times of market volatility, investors should always remember the reason they invested, and their long-term investment objective.
Indeed, according to Paul: “Anyone thinking of investing should base their decisions on an evidence-based, long-term investment strategy. Although the uncertainty of Brexit will no doubt make markets more volatile, it is important to block out the ‘noise’ of the news cycle and remember your reasons for investing in the first place. If your objectives remain the same and you are happy to review your investments with your independent financial planner regularly, there should be no reason to panic.”
Another avenue investors could explore in light of Brexit is diversification. Investing in a diverse range of asset classes is an effective way of reducing market volatility and could give you peace of mind during this tricky political era.
How will Brexit affect pensions?
Although the values of pensions may fluctuate for a short while after Brexit, a long term view and investment strategy is important. Again, Paul’s advice is not to panic: “If you have more than ten years left until retirement and you have an evidence-based investment plan, try not worry. If you plan to retire in the next five to ten years, it is a good idea to sit down with your independent financial advisor to discuss any potential implications.”
How will Brexit affect insurance?
According to Paul, Brexit is unlikely to affect the insurance market. However, he does emphasise the importance of reviewing one’s life insurance policy as so few people have an adequate level of cover.
And finally… there is no need to panic!
We’ve said it already, but it is important not to panic in the face of Brexit. Paul further notes that: “Families and individuals should only really be concerned about preparing for Brexit if they have a short-term investment portfolio. Indeed, I would recommend looking for a long-term strategy that takes tools such as diversification into account. It is also important, of course, to seek advice on your current financial health. A financial advisor will be able to offer valuable assistance that could help you avert potential losses caused by any form of Brexit.”
How could Huggins Wealth Management help prepare you to prepare for Brexit?
It is only natural to be concerned about the ways in which Brexit could affect your finances and your family. Huggins Wealth Management could help you prepare by limiting the so-called “human” risks associated with leaving the EU.
As Paul explains, “We simply will not risk positioning a portfolio towards a certain type of Brexit, as the future is so uncertain. Rather, we will use a multi-asset evidence based approach that ensures your existing investments are well-diversified.”