The impact of Brexit on your finances
Guest blog from Lisa Ashford of Ethex
Lisa Ashford, CEO of positive investment and savings platform, Ethex, looks at what Brexit means for your finances and for positive investment.
The UK’s vote to leave the EU at the end of last week has ushered in an era of political and financial uncertainty. In the immediate aftermath, the pound dropped to a 30-year low; UK stocks had the worst fall since the financial crisis in 2008; and high street bank shares have declined significantly.
It is now likely that there will be a long period of readjustment in the UK as the negotiation process unfolds. Any financial product governed by interest rates, stock markets or currency values are likely to see change.
The £ in your pocket
It is possible that you’ll have less money in your pocket as the drop in sterling will mean that buying goods and services outside the UK – fuel, foreign cars, food and clothing – will cost more. The weaker pound will mean holidaying abroad over the coming months will also now cost you more (that’s unless you were clever enough to pay for your holiday early and buy your foreign currency before 23rd June).
Savers have suffered with rock bottom rates since the financial crisis in 2008. Rising prices might well push interest rates up. But, on the other hand, if the economy struggles to grow, the Bank of England might also embark on new rounds of quantitative easing to keep interest rates low enough to encourage growth.
This will mean it will be even harder for savers to find the right opportunities to make a good return on their money. It is worth noting that in the light of some financial institutions looking at scaling back in the UK, Triodos Bank put out a statement this week about their commitment to operating in the UK
Stocks & shares
There is going to be a period of uncertainty while markets adjust and companies work out how to respond. Shares typically rise with company profits: companies that are net exporters might benefit from the weaker pound so the value of shares will rise, while net importers might well see profits squeezed.
Is there a safe haven?
Non-traditional investment products offer an alternative opportunity in this climate. With the benefit of returns forecasted from 5 to 7%, much higher than many savings accounts, UK-based community energy share and bond offers could offer a relatively safe haven in a stormy environment.
Returns are based on the sale of electricity generated back to the grid and from the Government Feed-in Tariff (FiT) scheme, giving projects fairly predictable long-term cash flows. It is worth noting that the organisations listing products on Ethex have all pre-accredited their schemes with OFGEM last September. This means that tariffs are then fixed for the lifetime of the project, are index-linked, and not affected by further changes to the FiT rate.
With the possibility of rising inflation, these products could also benefit from inflation-linked incomes. And it’s worth noting that all Community Benefit Societies and some Co-operatives pay distributions in the form of interest. This means that the Personal Savings Allowance applies to a large number of these savings and investment products.
It is going to be much harder to save your money and build long-term wealth: many investors are going to have to battle to harden themselves against market changes. But on the upside, with banks and currency markets in disarray there’s a possibility people might look at alternative products and diversify their portfolios.
Not surprisingly, investment slowed down on the day the referendum results came out on 24th June, but it’s now picked right back up. We’ve even had investors tell us this week that some of Ethex’s positive investment and savings products look very interesting in this climate.
In fact several offers successfully closed on the Ethex platform this week and we experienced a rush to the finish line for renewables project Linton Hydro, which closed early due to over subscription.
Luckily, there are still many positive investment and savings options to choose from and you can help these projects become a reality.
Further reading: Investment platforms