Skipton Financial Services
Friday, June 24, 2016 - 10:12

Market Update – Britain decides to leave the EU

The British public has voted, and the UK will be leaving the European Union (EU).

High poll turnouts across the country saw Leave win by more than a million votes, and an overall majority of 52%. Although Northern Ireland, Scotland and London delivered majority votes for Remain, large parts of England and Wales voted to Brexit.

What happens now?

As part of the EU treaty that the UK signed up for, it is required to give at least two years formal notice to exit the single market. The full timetable for when this will begin has yet to be announced, but we do know that it will not start until the autumn at least.

And that’s really important. There will be no overnight changes. The transition will be slower and smoother than some might fear; allowing time to negotiate terms with the EU on matters such as trade deals.

That said it would be wrong to underplay the significance of the referendum verdict. This morning, the FTSE 100TM opened with a 7% fall before starting to slowly bounce back. Other global stock markets that were open whilst the votes were being counted felt the negative impact, as it became clear which way the vote was heading.

Meanwhile the Pound has fallen to its lowest level against the Dollar since 1985. The future for interest rates is unclear, and there is some talk of an emergency budget which might have an effect on our personal finances.

On a political level, David Cameron has confirmed he will be stepping down by October. The next Prime Minister will then be tasked with leading the negotiations with the EU over Brexit. 

Nicola Sturgeon, the leader of the Scottish National Party, has already hinted that Scotland might hold another referendum on its future in the UK, as Scottish people “see their future as part of the European Union”.

Whatever your view on the vote, both sides agree that a Remain outcome would have led to greater stability in the short-term, compared to the path we are now about to take. With so much uncertainty over the immediate future of the UK following this verdict, some short-term market volatility would not be a surprise.

That said, markets had already dipped in the build up to the referendum. This suggests that – to an extent – they have priced in the possible consequences of a Leave result.   

Now is not the time to panic

This is not the first time that markets have fallen, and they have recovered before. Experienced investors know that it’s about time in the market, not timing. Making a rash decision with your investments now would likely only result in the realisation of losses, whilst depriving you of the potential for long-term gains.

The table below shows the last four significant FTSE 100TM market falls, and their subsequent recoveries over time. Past performance is not a guide to future returns, but they show that by staying the course investors can still realise their long-term goals.

Year

Event

Drop from peak

Gain five years after the trough

1987

Black Monday

-31.8%

+120.6%

1990

Iraq invades Kuwait

-14.0%

+199.2%

2001

9/11

-11.8%

+57.2%

2008

Lehman Brothers bankruptcy

-29.6%

+112.6%

Figures: FE Analytics

Whilst markets rise and fall over short-term periods, it is their long-term record which really matters. As an investor, you shouldn’t let the uncertain short-term future of the country derail your own financial future.

Naturally if you have any queries or concerns about your investments, we are here to help you.

Call us now on 0800 731 5342Request a Call Back

If you would like to receive information similar to this via email - please subscribe to our mailing list - click here.

Similar insights & resources

Why get financial advice?

When it comes to your money, seeking financial advice from an expert can have an equally positive impact on this hugely important area of your life. 

Coping with financial difficulties

It doesn’t matter how well off you are, almost all of us worry about money from time-to-time – and that anxiety can be exacerbated when it comes to coping with financial difficulties.

Financial scams – beware!

We feel it’s vital that you’re fully clued up on this subject, in case you’re ever targeted by a fraudster. So we’ve provided useful information on what to look out for, what to do if you’re ever approached and various types of scams.