What Article 50 might mean for savings, currency, investments and more

Prime Minister Theresa May has triggered Article 50, which kicks off the two-year process of leaving the European Union. Here’s what it might mean for your money.

The UK has given notice under Article 50 of the Lisbon Treaty, which formally marks the beginning of a two-year process of leaving the European Union.

We’ve known this day was coming ever since the UK voted to Brexit in the EU Referendum on 23 June 2016.

Here’s what Article 50 might mean for the pound, property, savings and investments.

Currency

In the aftermath of the shock Brexit vote, there was a dramatic fall in the pound against a range of major currencies, especially the euro and dollar.

There were fears that a similar drop could be on the cards as Article 50 was triggered. But, while the value of the pound dipped from €1.151 to €1.145 towards the end of trading yesterday, it has actually recovered this morning, rising back to €1.151 at the time of publishing.

However, there could be further volatility as the letter is received by European Council president Donald Tusk’s later.

If you're going on holiday, you might want to hold off on buying your holiday money for as long as possible to avoid the short-term effects triggering Article 50 could have on sterling.

One way to avoid losing out is to buy from a firm that allows you to order your currency but with room for cancellation. This enables you to lock into today’s rate, but if it improves you can cancel and get a better rate elsewhere.

Alternatively, you could get a fee-free overseas credit card that gives you the best exchange rates on the day you spend.

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Property

In August 2016, just two months after the EU Referendum, the Bank of England decided to cut the Base Rate for the first time in seven years from 0.5% to 0.25%.

Now, however, with inflation rising sharply, the focus has turned to when the key rate of interest might start to rise.

Any economic uncertainty following the triggering of Article 50 could convince the Bank to delay a rate hike or, in extreme circumstances, cut it even further.

This would be good news for the millions of borrowers on variable-rate mortgages, whose rates are affected by Base Rate.

And what of house prices? While there is going to be uncertainty, Nationwide chief economist Robert Gardner believes house prices will rise regardless thanks to the seemingly age-old problem of a lack of new homes.

“Along with most other forecasters, we expect the UK economy to slow through 2017 as heightened uncertainty weighs on business investment and hiring," says Gardner.

"Consumer spending, a key engine of growth in recent quarters, is also likely to be impacted by rising inflation in the months ahead as a result of the weaker pound. 

“Nevertheless, in our view a small rise in house prices of around 2% is more likely than a decline over the course of 2017, since low borrowing costs and the dearth of homes on the market will continue to support prices."

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Savings

The prospect of the Base Rate sticking at 0.25% for long, or even being cut further, would be bad news for savers.

Saving rates have been in the doldrums since 2009 when Base Rate was slashed to just 0.5% and savers were hammered again when the rate was reduced by 0.25% last year.

In the aftermath of the change, some banks and building societies were found to be cutting savings rates by more than 0.25%.

No change or further reductions to the key rate of interest could mean savings rates are cut even further.

This, coupled with the threat of rapidly-rising inflation, could mean your savings might lose value in real terms.

The Office for National Statistics latest figures reveal inflation rise to 2.3% in February 2017, this is the biggest growth in the index since September 2013.

So savers should act quickly to grab a top-paying current account or lock into a fixed-rate deal before rates fall. Take a look at Where to earn most interest on your cash.

There have also been concerns about the safety of UK deposits when we Brexit.

The Financial Services Compensation Scheme (FSCS) protects the first £85,000 of deposits per person per institution.

The level of protection is set by an EU directive between member states across all EU countries, but he actual scheme is run by the UK Government.

Savers shouldn’t worry about leaving their money in their accounts as the FSCS has confirmed the scope and coverage remains unchanged and deposits will be protected as normal.

The only thing that may change in the future is the level of this protection.

Beat inflation with a high interest current account

Investments

So far today the FTSE 100 is down 14 points to 7,329 and the FTSE 250 is down 18 points at 18,935.

But if you have investments the key message from the experts is ‘don’t panic’.

The market experienced a period of volatility and uncertainty in June 2016 when the shock Brexit vote spooked investors, but overall the FTSE 100 and FTSE 250 have bounced back.

In fact, the FTSE 100 hit record highs in recent weeks. The record of 7,429.81 at the start of last week marks a 20% rise compared to pre-referendum, when the index stood at 6,185.61 at the beginning of June 2016.

The FTSE 250 now stands at nearly 19,000 compared to just over 17,000 at the beginning of June 2016.

Over the short-term you should expect volatility from firms with heavy exposure to the pound and euro, as international firms that earn money in dollars are shielded from the pound’s weakness.

With investments, the value can go up, go down or stay the same and no one can predict what’s going to happen. If you were to panic and cash in today you might expect a paper loss but riding it out could see your investment recover or rise.

Annabel Brodie-Smith, communications director of the Association of Investment Companies, said: “The triggering of Article 50 starts the process but it will still be a while before we fully understand the implications of the decision to leave the EU.

"Reassuringly, investment companies have a long history and have weathered the First World War, the Great Depression, the Second World War, the rampant inflation of the 1970s and the financial crisis."

Don’t panic

Though it’s a big day for the UK, we still haven’t actually left the EU yet and it’s important not to panic and talk ourselves into recession.

The negotiations are set to take two years, which means we won't have a clearer picture of how the law and other areas that impact our finances might change until much closer to March 2019.

For some of the major changes to watch out for take a look at: 7 EU laws that could impact your money when we Brexit.

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