The UK has finally left the EU, more than three and a half years after the narrow vote to leave in the referendum of 2016. As we disentangle ourselves from our closest trading partner, we look at some of the potential opportunities and threats that might be on the horizon and what that might mean for your finances.
More money for public services?
After the UK has exited the transition period, we will save a net contribution of around £9 billion per year that otherwise would have gone directly into the EU budget. That could mean more money for public services, infrastructure or the NHS – wherever the government decides the money would be best spent.
However, most economists agree that Brexit will (and already has) made the UK as a whole poorer, at least in the short term, than it otherwise would have been had it voted to remain in the EU. Of course, while we don't know for sure what would have happened if the vote had gone the other way, we do know that the initial result caused a sharp drop in the value of Sterling which led to price increases in shops and at the petrol pumps, and the resulting uncertainty has seen investment into the UK plummet as businesses await firm news on the country's future.
Interest rate and currency fluctuations
The political contortions we have seen over the last few years has caused the pound and markets to be much more volatile than they used to be. Of course, currencies naturally go up and down over the course of years and both markets and consumers learn to adapt. The abrupt drop in the value of the pound after the referendum hit holidaymakers and exporters hard and caused the Bank of England to lower the Base Rate to its lowest ever level.
With big decisions looming over the future direction of the economy after Brexit, we may see volatility persist for a bit longer going forward – and perhaps the cost of your next holiday abroad remaining uncertain.
Changes in house prices
Early indications are that following the decisive election result last year, the housing market looks set to heat up following a marked slowdown during 2019. However, it remains to be seen how Brexit might affect the housing market in the long term.
For example, it is the stated aim of the government to bring in a new immigration system from 2021 and end 'freedom of movement' for EU citizens, meaning that it is possible we will see an overall decrease in net migration into the UK.
This may help to alleviate some pressure on housing supply, although much of the problem remains the fact that we simply don't build enough houses – an estimated 300,000 new homes are needed each year, which the government committed to deliver back in 2018.
Food and goods prices
The UK imports around 30% of its food from the EU, with a significant proportion of this consisting of fresh fruit, vegetables and dairy products. Changes in trade between the UK and EU means that the cost of some foods may go up if additional trade barriers are created by diverging with European Single Market.
Conversely, with the ability to strike new free trade deals with countries around the world, the costs of some foods might decrease if the UK is able to access new markets abroad such as the USA and New Zealand.
Changes in the banking sector and the wider economy
The dominance of the City of London as the world's largest or second largest financial centre may be impacted by Brexit. Within the EU, the UK had full access to European markets and benefitted from being able to shape existing regulation and protect London's status as the EU's financial centre – after Brexit this may no longer be possible and may lead to some banks or businesses shifting their operations away from the UK.
As the UK is heavily reliant on its services sector, particularly in banking and finance, any loss of business might be detrimental to the economy.
Brexit also presents an opportunity for the UK to diverge from existing EU rules which may affect different parts of the economy – for example, car manufacturing which relies on time-critical and frictionless supply chains may struggle if new trade barriers or checks are introduced at the border. Conversely however, the UK will be able to set its own rules in relation to the economy and may be able to use these new powers to boost certain industries through new regulation, incentives and policies.
So while the formal withdrawal process is now over, it may yet be many years before we fully understand how Brexit might impact the country and whether at the end of the day we'll be richer, poorer or about the same than we otherwise would have been as a member of the EU.