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How Will Leaving the EU Affect Your Finances?

21.08.2019 by Jack H

It’s been all over the news for years now, and yet Brexit has come to be so muddled in party politics and misinformation that it can be difficult to know exactly how leaving the EU will affect your personal finances. Add to this confusion the fact that, three months off, it’s still unclear which way the pendulum will swing, there’s little wonder why more and more people are searching the internet to see how exactly Brexit might change their financial health or affect their cashflow. This article takes a look at this complex issue, mapping out some of the facts, and some of the unknowns.

Short-Term Dips

As we’ve already seen in the wake of the referendum and again at pivotal points in the UK’s exit strategy, both UK markets and Pound Sterling have dropped in the short-term as a reaction against the political situation on the ground. So, whether it was Prime Minister May’s deal being rejected or Boris Johnson becoming a new Prime Minister increasing the risk of a ‘no-deal’ Brexit, the markets have been some of the quickest to react to fluctuations in our fortunes.

Now, whichever side of the debate that you sit, these fluctuations may actually have started to affect you financially – and that’s before we’ve officially left the EU and entered the ‘transition phase’ between leaving symbolically and leaving materially.

If you’ve taken a holiday in Europe this summer, for instance, you will have spent more money than before. The pound is less strong, which means you’re spending more to purchase anything in the Euro currency. The same goes for any stocks or shares you own in British companies or companies with large investments in the UK. You’ll be well aware that they’re more precarious, at least in the short-term, than they were before Brexit.

Long-Term Thinking

Short-term dips happen all of the time. They happen as a result of a multitude of different factors – sometimes factors that aren’t much to do with the domestic UK market at all. So, while there is good evidence to suggest that leaving the EU has already hit you financially, it’s clear that the real financial repercussions will be felt in the long-term aftermath of Brexit – sometime between one year and ten years after we’ve left the European Union. At this stage in negotiations, it’s fairly impossible to tell what kind of deal we’ll be leaving with – if the UK leaves with a deal at all. This complicates matters.

There are a number of options still technically on the table:

  • May’s withdrawal agreement
  • May’s deal with the ‘backstop’ removed
  • Labour’s proposed deal
  • A newly negotiated deal (Johnson has cited Norway and Canada as deals to emulate)
  • No deal whatsoever

And that’s not to mention the political factors that will enter play when Parliament returns after their summer recess:

  • Potential vote of no confidence in Boris Johnson
  • Potential General Election
  • Potential for a second ‘people’s vote’ referendum
  • Potential delay in the withdrawal date for the third time

With so much happening on the political scene, it would seem presumptuous to outline in detail just how Brexit might affect one’s finances. However, there are some suggestions that are relatively consistent with different scenarios, which we’ll take a look at below.

Cost of Living

The cost of living in the UK is one of the key lifestyle indicators of financial freedom, quality of life and day-to-day finances that millions across the country are concerned about. It’s difficult to put a figure on the changes that are due to take place here, but we can assume that the cost of living will rise slightly in the years following leaving the EU.

This means that most of the things that we buy on a regular basis – like food, fuel, homeware goods, clothing and other necessities for life – will see their prices increase slightly. The cumulative effect will be one that sees our wages a little more spent, and our savings a little less added to, over the years ahead.

There are a number of reasons for this. The first is that leaving the EU will interrupt trade deals that are designed to reduce the cost of commodities for the consumer. With some trade deals with the EU severed, the UK will be looking to arrange new trade deals with the rest of the world – the US one of the primary trading partners in this regard. These deals take time to negotiate, and more time still to trickle down their benefits to the consumer. As such, we can expect our shopping baskets to increase in price until trade deals stabilise in the wake of leaving the EU.

Foreign Travel

Holidays to Europe will become more expensive. This is a no-brainer in terms of some of the benefits that the UK will lose with regards to travelling overseas. Being outside the EU’s freedom of movement area, UK citizens will have to pay more to travel inside the continent, and will likely be spending more GBP to purchase Euros for the trip.

Moreover, with the cancellation of such deals as the ‘inter-rail’ scheme that ensures that individuals can travel across Europe cheaply on the trains, it’s likely that travel inside of Europe will become more expensive for UK citizens. Of course, the actual figures are difficult to define at present and may end up being barely noticeable, but it’s unlikely that foreign travel into the EU will become cheaper in the wake of our leaving some of the cost-cutting schemes that save UK citizens cash in the European Union.

Businesses

Hundreds of thousands of UK citizens own small businesses. Millions more benefit from the tax that these businesses pay, and the injection of capital into the economy that they provide. A chorus of voices in the world of business has not come out against Brexit per se – but they have come out to rally against the uncertainty that it’s created. Why? Well, because it’s hard to plan your next quarter and your business strategy for the next year when you don’t know if you can keep your staff if you can continue trading with EU partners, and whether key suppliers and clients will be moving to pastures new.

If you own a business, you’re sure to appreciate this anxiety. Businesses that operate in fields in which suppliers and clients are connected in a web of commerce and trade are particularly nervous about the repercussions of Brexit, as they’re unsure where to invest for the future.

In any case, all of this means that businesses are slowing down, being more cautious, and spending less in the lead-up to leaving the EU. Due to the nature of the economy, this means slower growth and the risk of recession. So, in a best-case scenario, we can expect wage increases to slow as the price of living rises; in the worst case, we might encounter another recession comparable to that experienced in 2008.

Positive Impact

It’s unrealistic to say that Brexit will result in a considerable loss of income, and a considerable hike in the cost of living, for all UK citizens. In the long-run, there are reasons to be positive – if the UK happens to arrange productive and secure trade deals with the rest of the world as we leave the EU for good. There have been multiple stories circulating the press regarding US food products – some of them reportedly unsafe for consumption – which, if we choose to import them, will actually bring the cost of food down.

Meanwhile, the case has been made by the UK government that in the wake of Brexit, people will not have to pay so much tax. Whether this transpires to be the case for some of the least privileged families across the country remains to be seen. What’s almost guaranteed, however, is that corporation tax and business tax will reach new lows as the UK aims to attract new business and investment to these shores. This is good news for business owners and the middle class, which is likely to see a decrease in the amount of cash they part with for tax month on month.

Hypothetical Reasoning

All that said, it is simply too early to tell when the financial effects of Brexit might be. It’s not unreasonable, given the political deadlock and the slim majority enjoyed by the Tory government, to expect a General Election that will once more turn the kaleidoscope. We will have to wait for the pieces to settle once more before the picture reveals itself.

As such, it’s only possible to comment on the short-term. The prognosis here is that UK citizens will indeed lose money – not a considerable about, but enough to hit those who live week-to-week. In the long-term, the outlook is far foggier. Much depends on the securing of new trade deals and the translation of these into benefits for UK consumers. As we wait for the calendar to peel towards October 31st, it’s small businesses that will be most anxious about a secure, stable and orderly Brexit outcome that causes as little disruption as possible.

CCTA

Regulated by the Financial Conduct Authority