Brexit Day: what does Britain leaving the EU mean for your money?
As Britain finally leaves the EU, John Stepek looks at what the future might hold, and how it will affect your investments.
So today’s the big day. Tonight, at 11pm, Britain leaves the European Union. What does it mean for your money? The short answer (and the short-term answer) is: nothing.
The UK might be leaving the EU, but we move straight into a transition period during which the rules all stay the same. We now have 11 months (until the end of the year) to come to an agreement, or else the UK leaves on plain old World Trade Organisation (WTO) rules.
So is this just yet another fake deadline, like all the other fake deadlines over the last three or so years? No. This one is very different. The main difference boils down to clarity.
The one big difference between yesterday and tomorrow
I wrote about this more in the current issue of MoneyWeek magazine (you can subscribe here). But what’s really changed now is that everyone knows that Britain is leaving. After tonight, there is no going back (not without reapplying at least). There is no stopping the process – it’ll already have happened.
It's absolutely fair to say that we still don’t know for sure exactly how the details will pan out. There’s a lot of negotiating to do and a lot of that will depend on what the UK prioritises, what the EU prioritises, and what approach the US takes on trade over the year ahead (which will almost certainly be dictated by Donald Trump’s electioneering, and therefore probably not high up the agenda).
However, businesses (and individuals, and government departments) both in the UK and in the EU now know that Brexit is definitely happening. So businesses know they have to plan ahead, whether they were for or against Brexit. And politicians and negotiators can focus their energies on doing a deal, rather than trying to scupper one.
In turn, that implies that Britain has probably already seen its Brexit-related nadir. The pound might not soar this year. The chatter over “no deal”, and battles over fisheries and finance between now and the end of June promise to generate lots of headlines that could have sterling yo-yoing along. But it’s probably seen the worst.
The UK stockmarket has lagged other markets badly. Fund managers might still be wary, particularly as “growth” remains the paradigm, whereas the UK and the FTSE 100 in particular are arguably more along the lines of “value” investments (big dividends, for a start). But with uncertainty less pronounced, we’re likely to see the valuation gap close.
Oh, and there is an almost immediate bonus coming our way. From 6 April this year, National Insurance contributions will be cut. Chancellor Sajid Javid has confirmed that the threshold at which we start paying NICS will rise to £9,500. That will save the average employee about £100 a year.
This of course has nothing to do with Brexit directly. It’s more a statement of intent. Still, it’s nice to see at least some taxes dropping rather than rising.
Don’t imagine that everything will go right
Please note – none of this is to say that things can only get better. The global economy looks fragile. China was already wobbly, and coronavirus is an unknown quantity. The monetary system remains extremely out of whack, what with negative interest rates, money printing and the cult of the central bank still firmly in place. There are a lot of things that can go pear-shaped.
The point, though, is that if things go pear-shaped, it’s most likely not going to be a direct result of Brexit. Also, because the UK has lagged the rest of the world during this period (in terms of stockmarket valuation specifically), there’s probably good scope for the British market to play catch-up over the year ahead.
So in relative terms at least, the UK looks a decent bet this year. You’ll be able to find out more about the sorts of areas we find most promising – and how the twists and turns of negotiating might throw up both threats and opportunities – in current and upcoming issues of MoneyWeek magazine. If you’re not already a subscriber, get your first 12 issues for £12 here.