So the UK has voted to leave the European Union in this week’s referendum. But what are the likely implications for people’s finances?
As has been the case throughout the campaign, there is still a lack of clarity about exactly what is going to happen over the coming weeks and months as Britain negotiates the terms of its exit from the EU as well as any future trading deals.
But here is a round-up of what has happened so far and what the likely or possible economic implications could be.
Pensions and investments
The most immediate financial impact of the 'out' vote was seen on the UK stock market. The FTSE-100 index slumped by more than 8% when trading began on Friday morning, although some of the losses were recovered as the day went on.
It is not clear whether Brexit will lead to permanently lower share prices, but the volatility which the markets have experienced during the campaign is expected to last for some time.
For people who have not yet taken their pensions, they should think about moving their holdings to lower-risk assets such as bonds or even cash in the time leading up to retirement. This should help reduce the chances of their fund suddenly slumping in value just as they are about to cash it in. However, selling investments when the market is down – and thereby crystallising losses – should be avoided if possible.
Register for our free money newsletter here.
For those considering or already using drawdown schemes, where pension cash remains invested and money is taken out of the fund on a regular business, it may be worth re-assessing the risk levels in your investments.
As far as the state pension is concerned, there are no plans for any changes or any reform of the current “triple lock” guarantee, which ensures that state pensions go up by at least 2.5% a year. However, if Brexit puts pressure on public finances, all areas of government spending are likely to come under renewed scrutiny.
The referendum result has also led to lower rates on UK government bonds (also known as Gilts): if this remains the case, annuity rates are likely to fall over the next few weeks.
Paul Lewis' Guide to the new state pension system.
As well as a plunging stock market, news of the referendum result caused a sharp decline in the value of sterling, based on the fact that currency traders expect foreign investment in the UK to decline.
In the short term, this means that anyone heading abroad over the next few weeks is likely to pay more for their holiday cash, regardless of whether it is euros, dollars or any other country’s money.
Savings and interest rates
If Brexit causes a slowdown in the UK economy, it is very unlikely that the Bank of England will raise interest rates from their current record low of 0.5% any time in the near future. As such, the rates paid on savings accounts is unlikely to change significantly.
However, if the Bank of England felt that it had to intervene to prop up the value of sterling, raising interest rates could be one way of doing this – and savers could benefit from such a policy.
Special offer: Try 12 issues of Saga Magazine for just £12 (Direct Debit).
People living in the EU
In his first speech following the announcement of the referendum result, the Prime Minister David Cameron said that the status of UK nationals living in other EU countries – for example the hundreds of thousands of expats based in Spain – would not change in the short term.
What happens to groups such as this, as well as to EU citizens in the UK, will be a matter for negotiations between Britain and Europe. But it remains unclear when these will even begin, let alone how long they will take or when they will be concluded.
Until then, the message from the outgoing PM is that expats’ status and right to live in the EU will be unchanged.
Prices and inflation
The way the UK economy reacts to Brexit will be the key factor in determining what happens to inflation in the coming months. But the fall in the value of the pound will very probably have a short-term impact on the prices of goods and services imported from overseas.
The most significant of these will be oil prices: oil is valued in dollars, so a fall in the sterling-dollar rate will probably push up the cost of petrol and diesel in the near term, while gas and electricity prices could rise further down the line.
For more news and information, browse our money articles.