Keep calm and carry on. How very British. Despite the ironic use of “British” given the current circumstances, the mantra printed on just about everything from postcards to pinnies is not a bad one to follow in these dramatic times.
I have lived through more financial crises than I care to remember. Indeed I first started working in financial services at the time of Black Monday, when the stock market crashed in October 1987. The world continued to spin on its axis and went on to endure more crises from which we all emerged to tell the tale.
Nevertheless, the vote for the UK to leave the EU and the unimagined political chaos that ensued this week has led to a sharp, and so far sustained, fall in the value of the pound. This in turn is likely to mean that buying goods and services from other countries will become more expensive, leading to higher inflation. Holidaymakers, particularly those visiting the United States, have a lot less dollars to their pound. And as aeroplane fuel is paid for in dollars, a sustained fall in the value of sterling could ultimately result in higher air fares.
We are some way from knowing the full effect of Brexit on economic indicators such as gross domestic product , inflation and employment but the direction of interest rates has become clearer as the governor of the Bank of England, Mark Carney, has signalled more quantitative easing – pumping more money into the economy – and indicated interest rates will be cut beyond their current record lows.
This could be good news for mortgage holders if it leads to further reductions in mortgage rates but it’s the last things savers in cash deposits will want to hear. Their savings have been languishing in bank and building society accounts paying meagre rates of interest in recent years and now they could fall further.
Investors in shares – including of course Scottish Friendly’s ISA customers – have had a better week after the initial Brexit plummet in the stock market. The FTSE 100 Index currently stands at over 6,500, its highest point for almost a year. That’s because the Brexit vote is necessarily bad news for the long-term prospects of the stock market; the fall in the value of sterling makes British exports more attractive, thus boosting the profits and share prices of British companies that export. So investors may be able to take heart that their hard earned savings or pensions may not plummet after all.
If I have a concern, it’s not necessarily about the ups and downs of the stock market; that’s what happens with the stock market and provided you’re investing over the long term you will ride out its vicissitudes. My concern is that for families that are already squeezed, they could be squeezed further as there is a danger the cost of living could increase and this in turn will mean people will have less money to save and invest for their financial future. Whatever transpires, it’s important that we carry on trying to do the right thing, remain calm and try to save for our future where and when we can.