Brexit: What the latest furore means for your money

How Westminster wranglings could affect your personal bottom line

Resignations such as that of Brexit secretary Dominic Raab had an immediate effect on the value of sterling (EPA)

It has been a riotous 24 hours in the corridors of power with deals done, resignations tendered and more than a few pointed pieces to camera by wannabe leaders.

By now the rest of us have realised something that the population of the House of Commons seems still unwilling to grasp – that this isn’t actually a game.

There are consequences not just for our individual financial affairs next March, but right now.

As the headlines erupted, markets stuttered, exchange rates choked and independent experts across the country sat back and took stock.

Here’s what they think all this means for your money.

Market reaction

The stock exchange was closed when the prime minister announced the Brexit agreement last night, but by Thursday morning, the biggest impact was clearly on UK focused housebuilders, banks and retailers, with vocal opposition to the deal and ministerial resignations putting downward pressure on these share prices.

“The market has taken a big red pen to stocks which are heavily exposed to the UK economy like the banks, retailers and housebuilders. These sectors were already under pressure, but the potential for an orderly Brexit to unravel in the next few days is causing further distress to be manifested in share prices,” says Laith Khalaf, senior analyst for Hargreaves Lansdown.

The pound held around $1.30 until early on Thursday morning, though ministerial resignations had pushed it down to below $1.28 at the time of writing, prompting governor of the Bank of England Mark Carney to summon the UK’s biggest banks to a call to discuss market turmoil.

But because so many of the biggest firms registered in the UK are heavily invested overseas, the drop is actually helping to keep these international organisations buoyant. That’s because they are making money in dollars, euros and yuan, which are now worth more in sterling terms.

“However if sustained, a weaker pound spells bad news for a retail sector which is already struggling, as it hikes up the price of imported goods and at the same time squeezes consumer incomes,” Khalaf warns.

“We can expect continued volatility in financial markets while political uncertainty swirls around Westminster. However it’s best to keep investment decisions detached from politics, as the EU referendum amply demonstrated. In febrile market conditions investors will be well served by avoiding kneejerk reactions and focusing on the long-term prospects for their portfolio.”

Knock-on effects

“Another interesting issue is how the Bank of England will react. Perhaps it will now take a cautious stance, meaning that the interest rate rises we were expecting will have disappeared, and this will do nothing for helping bank’s net interest margins,” says Helal Miah, investment research analyst at The Share Centre.

“In my 20 years in the City, I have never seen such polarised movements on a single day between UK and non-UK focused stocks in the main index.

“Obviously, uncertainty has increased but this brings about the possibility of two polar outcomes, either a no-deal exit or the possibility of another referendum or general election.

“A no-deal Brexit is bad enough but a general election and the possibility of Jeremy Corbyn as prime minister could be a worst-case scenario for many businesses.

“This leaves UK investors in a conundrum; the stock market still offers attractive long-term returns but they will now need to focus even more so on what underlying exposures they have. Since the referendum, the international giants have fared rather well and we take the view that this will probably continue.

“Even if the global economy is slowing, there is growth nonetheless, and overseas earnings will be much more valuable as the sterling falls.”

What now?

“The message for investors is to leave any strong convictions at the door,” warns Will Hobbs, head of investment strategy at Barclays Smart Investor.

“The crucial point remains that the UK formally agreed to the draft withdrawal agreement and political declaration on the future relationship between the UK and the EU. However, the politics is complicated to say the least.

“Our hunch remains that the potentially dark unknowns of a hard Brexit will incentivise compromise of one sort or another. If such a compromise is not found, we should be prepared for both the UK economy and its related assets to be subjected to a more hair-raising time for a while.

“Nonetheless, the intrinsic value of the stocks quoted on the UK’s exchanges tends to have little to do with the UK economy.”

But that’s not all

The other issue, especially those trying to plan their retirements for example, is the yawning political vacuum left whenever a minister exits the building.

“Esther McVey’s departure after just 10 months in her position is unsettling, particularly since she evidences the lack of faith in Theresa May’s leadership. Who will replace her and how long they will last is anyone’s guess, particularly given the growing risk of a no-confidence vote,” says Jon Greer, head of retirement policy at Quilter.

“Leadership at the DWP has been about as stable as a mobile home in a hurricane as a parade of ministers have picked up the baton only to fling it away. Setting retirement policy and ensuring we have a well-functioning state pension system is a long-term project which is put at risk if the minister responsible for the DWP changes from one year to the next.

“Those planning ahead for their retirement need certainty and stability when it comes to government policy so that they can make informed financial planning choices,” Greer adds. “There are some big ticket issues that cannot be ignored for much longer, such as the future of the state-pension, gaps in auto-enrolment and the pension dashboard among many others.

“However, it seems all this will continue to be on the back burner as Brexit sits centre stage at Westminster.”