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Insight & Opinion

The pound: One year on from Brexit

Author: Staff

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The seemingly never-ending debates, negotiations and will-they, won’t-they discussions that have been rolling on since last June make it feel like only a matter of weeks since the UK voted Leave in the EU referendum. However, it has now been a full year since Brits took to the polling stations and a slight majority voted to go it alone and leave the EU.

So, in the 12 months since the votes were counted and moves to activate Article 50 were started, much has changed for the UK, particularly financially.

We saw a lot in the way of uncertainty in the immediate aftermath of the result’s announcement, and since then there has been a bit of turbulence, but it’s mostly been a return to stability for the UK, with property prices and other important metrics performing better than might have been expected.

Here, we take a look at a few of the most vital financial indicators, and how they have changed since the vote to leave the EU one year ago.

Cost of a holiday

Anyone going on holiday in the months after Brexit will know what it meant for their currency exchange; nervously checking apps daily to see if the rates against the dollar or euro would be likely to come back up any time soon. But it’s not just travel money that we had to worry about, as the price of going on holiday also rose in the few months after the vote.

According to reports, prices rose up to the end of 2016, and again this year. Hotels.com reported in March that the average European destination holiday has risen in price by 35 per cent since the Brexit vote, with 90 per cent of all holidays having increased in price in that time. Similarly, Thomas Cook’s recent report states that in 2017, it expects to see the price paid by Brits for holidays climbing by nine per cent.

Price of petrol

Petrol was one of the areas that was surprisingly largely unaffected by the Brexit vote last year, largely because the industry saw a drop in the price of oil at the same time. At the time of Brexit, petrol prices sat at 112.17p on average nationwide. One month after the vote, this was largely unaffected, but most of this impact came from the six per cent fall in the wholesale costs for oil.

In the year since the vote, prices have continued to stay relatively competitive, and have yet to rise all that much. Continued supermarket wars between the big players, who have attempted to keep prices low, means that the Brexit effect has been somewhat offset. It means that in the 12 months since the UK voted to leave the EU, petrol prices have risen only slightly, and a second week of falls in early June means they now sit at 116p per litre on average.

Sterling’s value

The value of the pound was perhaps the worst affected area by the referendum outcome. In the immediate aftermath, the pound fell from an average of about 1.5 against the dollar to 1.33 in a matter of hours. For months afterwards, sterling’s value hovered around 1.2 to 1.3 for a number of months, even well into 2017. As we approach a year since the decision was made, the pound still hasn’t fully recovered, and in early June it remains at just 1.29 against the dollar.

It was a similar story for the pound against the euro. Before the vote, the pound was worth around 1.3 against the euro, but in the aftermath, this fell rather dramatically. In the year since the referendum, the two currencies almost reached parity on a number of occasions, and as we reach the anniversary, the rate now averages out at around 1.15 against the euro.

Elsewhere, the pound has also dropped against currencies like the Japanese yen – where it fell from 156 pre-Brexit to just around 141 in 2017 – and the Saudi riyal – against which it peaked before the referendum at more than 5.58. A year on, the pound’s position against the Saudi currency has weakened to around 4.8.

UK property for overseas buyers

House prices were one of the areas that was forecast to be hit hardest by the decision to leave the EU, but in reality, there has not been the crash that was actually predicted in the run up to the referendum. Although house price growth has slowed somewhat and been hampered by something of a wait-and-see attitude post-Brexit, the dramatic bursting bubble that many expected has yet to actually materialise.

As of the end of May, house prices have actually risen in the UK, albeit slower than they have done in recent years. As we approach the end of the first year since the referendum, the UK also ended a five-month slump in house values, with the average cost, according to Halifax, sitting at £220,706. It means that since Brits voted to leave the EU, house prices have climbed by 3.3 per cent, which is a good omen, against a backdrop of uncertainty, for anyone looking to invest in UK property with the long term in mind.

When considering the drop in the value of sterling, overseas buyers have also been able to save a considerable amount on their purchases. For example, the decrease in the value of the pound against the euro means buyers coming from the continent will now pay around 11.5 per cent less than they did 12 months ago for property.

This has also increased confidence in the market from around the world. With data released by JLL showing that Asian investors made up 28 per cent of UK property transactions in 2016, up from 17 per cent in the previous year. Chinese and Hong Kong based investors have also continued to snap up UK property since Brexit, spending £2 billion a year since 2013.

Inflation

inflation comes after a 2015 and 2016 that actually ended with deflation rather than inflation, as prices actually fell. However, for 2017, the forecast has changed markedly, and this is largely down to the decision to leave the EU. Food prices have climbed thanks to changes to relationships with European firms, and other products have similarly climbed in price.

For example, Dutch brand Unilever upped the prices of many of its products, such as Hellman’s mayonnaise, Carte D’Or ice cream and Comfort fabric, in the wake of the vote, which saw customers facing price hikes averaging 5.7 per cent for their favourite foods.

Overall, it’s expected that for 2017, inflation will come in at some 2.3 per cent, and this will start a trend that’s expected to thereafter continue into 2018, where inflation will hit more than three per cent. So even though we’ve already started to feel the financial effects of Brexit, this will actually continue for some time past the first year.

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