Last week’s vote to leave the European Union was a big milestone in the UK’s history, and, understandably, has brought with it some uncertainty.
Here at Experian, we’ve been working with people and businesses through times of prosperity and times of uncertainty for many years. And while we understand that uncertainty can be unsettling, our message is simple – don’t panic. In particular, don’t make rash decisions about your finances and always consider the pros and cons of any financial decision you have to make.
Many of us are wondering what might happen next, when, and how it might affect us, so let’s take a closer look at the situation.
What does leaving the EU mean?
One of the basic elements of the EU is that all the member states (of which there are currently 28) make up a ‘single market.’ This guarantees the free movement of goods, money, services and people; basically as if the EU were one country. However, beyond being simply a trade association, the EU is a form of government and so has some legal powers over its member states, so there are some UK laws that have their origin in EU law.
Last Thursday’s vote was specifically for the UK to leave the EU. However, the decision does not rule out the possibility of the UK having access to the single market for trade purposes (European Economic Area). The Government could, for example, opt to try to negotiate a similar model to Norway, which is not part of the EU but is part of the EEA which gives them access to the single market.
It is in the interests of the UK and the rest of the EU to negotiate a compromise that works for all countries, but at this stage – and until the new leader of the Conservative Party is elected – all options are on the table from the UK’s side.
For the formal process to begin for the UK to officially leave the EU, the UK Government must invoke Article 50 of the Lisbon Treaty . Article 50 effectively starts the clock on a two-year countdown, after which the UK leaves the EU. During this time, the UK and the EU negotiate the details of the UK’s new relationship. However, following David Cameron’s resignation the country first needs a new Prime Minister in place to lead these negotiations.
A Conservative leadership election is now underway with the candidates confirmed as Theresa May (Home Secretary), Michael Gove (Justice Secretary), Stephen Crabb (Work and Pensions Secretary), Liam Fox (Former Cabinet Minister) and Andrea Leadsom (Energy Minister). A new leader of the Conservative Party and Prime Minister is expected to be announced on September 9th. The new Prime Minister is then at liberty to begin the Article 50 process.
What to keep an eye on
The next few months are going to be very interesting and that’s before we even begin formally negotiating to leave the EU. There are a number of key things that we can all keep a close eye on over the coming months that may affect us and our finances:
- Interest rates could be affected. Whether they rise or fall will impact different people in different ways. For example, lower interest rates might mean better deals for borrowers, but savers might suffer, earning less interest on their money. If you have a tracker mortgage, you might find your mortgage payments fall if interest rates come down. If you are about to get a mortgage or re-mortgage, or apply for a large loan, ensure you are getting the advice you need and check your credit report early to make sure it’s accurate and up to date and paints the best possible picture of your financial situation.
- Exchange rates change regularly, and are likely to continue to do so, meaning you’ll get more or less for your pound depending where you travel. Since the referendum result, the pound has weakened against the Euro and the Dollar; however, there are still many countries that offer good exchange rates for British people travelling abroad. Wherever you choose to travel, make sure you shop around before you go on holidays and secure the best rate you can in advance, rather than just turning up at the airport and hoping for the best.
- Inflation may rise, which could mean changes to the cost of living, which could affect your disposable income. Make sure you know how and where you’re spending your money. This will help you understand if there are areas you can cut back on so you can confidently manage your finances and put some money aside if you can afford to.
- Property prices could change in time; however, in the immediate future, it’s looking unlikely that property prices will rise, which could be good news for first time buyers looking to get on the property ladder.
We think we should use this time as an opportunity to take stock of our finances. It’s the simple things like checking how much you have coming in and going out each month, what you’re spending money on, and knowing the interest rates on your mortgage, loans and credit cards. By doing this, you can get an overall picture of where you stand now, which will help you make better, more informed decisions. Things will eventually become clearer, and we’ll be here to support you every step of the way.
Most of us have lived through periods of uncertainty, both in the UK and in other parts of the world, and we’re fully confident we’ll come out the other side. It will take a while for things to stabilise, but we have no doubt we’ll get there. And during the good times and periods of uncertainty, our commitment to you and all of our customers will remain the same as it’s always been: to help you understand, manage and improve your credit report and help you get access to the best financial deals you can afford, whatever unfolds in the future.