Currency and stock markets have reacted dramatically to the UK’s vote to leave the EU.
Financial markets don’t respond well to uncertainty – and become increasingly volatile when events take an unexpected turn.
While it’s still early days, we explain what the leave vote could mean for your money.
What will happen to prices?
The pound has fallen to its lowest value against the US dollar in more than 30 years. As the polls closed, £1 would have bought you around $1.50, but as results were announced, it began to fall, hitting a low of $1.33 in the early hours of the morning.
A weaker pound will have an obvious impact on your spending power when you’re travelling abroad, but it will also affect the prices of many products you buy at home.
For example, this could mean that you might notice the impact of a weaker pound on petrol prices, as well as on other products imported from abroad.
What about interest rates?
Although interest rates are unlikely to change immediately, if inflation becomes a concern, it’s possible that the Bank of England will increase its base rate. However, it’s also possible that the base rate will be cut, to boost the economy.
The governor of the Bank of England, Mark Carney, stated that in the coming weeks the Bank ‘will assess economic conditions and will consider any additional policy responses’.
What will happen to mortgages?
If interest rates start to rise, mortgages could become more expensive. However, if the base rate drops, borrowing could become cheaper than it already is.
How will it affect my investments?
In the lead-up to the referendum, the UK stock market, and many of those around the world, were increasingly volatile. Stock market traders hate uncertainty, so markets rallied before the vote, as late polls indicated that a ‘remain’ win was likely.
However, now that the outcome isn’t what traders were expecting, many traders and investors have dumped shares, leading prices to fall.
The FTSE 100 index, which is made up of the 100 largest companies listed in the UK, lost more than 8% of its value when the market opened at 8am this morning. Falls of this magnitude haven’t occurred since the height of the financial crisis in 2008.
If you’re concerned about your investments and are unsure what to do for the best, contact a financial adviser before taking action.
Will it affect pensions?
Anyone with a pension invested in the stock market is likely to suffer significant losses in value, at least in the short term.
Market falls may prove particularly worrying if you’re using income drawdown, especially if you did this following the pension freedoms introduced in April 2015.