Maintaining a long-term perspective is the key to investment success
As was widely predicted, a vote to leave the EU wiped billions off companies’ share prices. Low interest rates and volatile stock markets are likely to be the order of the day for the foreseeable future, and any rise in interest rates would be good news for savers. However, it’s important to keep this event in context. This is far from the global financial crisis of 2008, but the decision to leave the European Union sparked volatility across asset classes. In terms of specific sectors, banking, airlines and construction experienced the biggest falls in share prices.
During the referendum campaign, the Prime Minister, David Cameron, said the so-called ‘triple lock’ for state pensions would be threatened by a UK Brexit. In their 2015 election manifesto, the Conservatives promised to extend the triple lock on state pensions – a guarantee that they rise every year until 2020 by at least 2.5%, or the rate of inflation, or growth in earnings if it is higher.
The economic effects of leaving the EU could cause unemployment to rise in the UK which would reduce the pressure for wage growth. The Treasury estimated that wages will be between 2.8% and 4% lower at the point of maximum impact.
Before the EU referendum vote, the Treasury predicted a vote for Brexit would mean a rise of between 0.7% and 1.1% in borrowing costs. The Prime Minister, David Cameron, claimed the average cost of a mortgage could increase by up to £1,000 a year.
For the UK to leave the European Union, it has to invoke an agreement called Article 50 of the Lisbon Treaty.
The Prime Minister, David Cameron, announced on Friday 24 June he would be stepping down as prime minister by October, and he or his successor will need to decide when to invoke Article 50 which sets in motion the formal legal process of withdrawing from the European Union and gives the UK a period of two years to negotiate its withdrawal.