SMUG MONEY: Positive, practical, principled – the 3 Ps that will get you through

Written by Rebecca O'Connor on 28th June 2016

I will not say this is awful.

I won’t say it is awful because thinking makes it so. That sounds fluffy as hell as we watch the Government and the opposition collapse, the £ drop further, business confidence fall off a cliff and profit warnings and job losses begin.

There seems no option but to storm this situation with positivity. So try not to hate people who voted Leave – or Remain; or laugh at the girl who can’t pronounce “referendum”; or sink into despair. Instead, concentrate on what unites us: a love of the United Kingdom, even if it is for different reasons (and even if it has taken a severe knock in recent days), and a desire to make things better.

This is not an argument for self-delusion. However positive each of us individually can manage to be, there is no averting the harsh lesson we are now getting in how that abstract and amorphous “economy” actually affects our personal lives, very deeply (and I am not even going to touch on the social implications here).

One way is our jobs, another is our freedom of movement, another is our house prices, another is all of our personal finances, from energy bills to loan rates. It is supremely ironic in the worst way that some of those who are most likely to have voted leave – the disaffected and disenfranchised – will now be among those most negatively affected by the decision.

But we will ALL be affected, and in far more subtle and profound ways than just how much our mortgage bill or rent goes up, as the impact of the financial crisis proved. Following the shock of 2008, higher house prices resulted in an increase in the age at which people get married and have children; the huge public deficit resulted in more people working into retirement and young people who can’t get jobs have to live with their parents for longer. More of the same again cannot be ruled out.

I don’t especially want to agree with the calamitous Boris Johnson, but when he says: “We must build bridges”, he is right. It’s an approach that will save our bacon and our cash.

Despite the turmoil at Westminster, a lot of clever people are working out how to protect us from the illest effects. Lower interest rates and money printing are on the cards. These strategies might be a recipe for ever-living debts and poor retirements, but they will buy us time.

What to expect for your money?

Short term: mid to high chaos. Medium term: uncertainty and mild to moderate recession. Long term: decades of recovery, re-writing of history with Brexit described as a “catalyst”, a very different outlook for our children and their children, not just as a direct result of Brexit, but everything that caused it and came after it too. Millions of years: a pin prick on the backside of humanity. Take comfort, if you can, from that last point.

More specifically:

  • An immediate and potentially long-lasting loss in pension funds and property. Savings and annuity rates may come down, before eventually probably rising, as interest rates rise to curb inflation.
  • Interest rate uncertainty – kept low in the immediate term to prevent a loss of confidence but over time, expect a rise to support the pound and keep a lid on inflation.
  • A rise in the cost of petrol and energy.
  • Inflation – cost of imported goods will rise. The UK imports a lot (about 60% of food), so we are likely to notice an increase in the cost of things that we buy every day including some foods and everyday household goods, toys, clothes, etc. Also an increase in the cost of British goods that use imported materials.
  • A rise in some taxes and a cut in some tax reliefs.

How to enact the three Ps:

What can any of us do personally? We’ve published a “Calm and careful action plan” with some ideas for your money.

Never has it been more true that what you do with your money is a vote for the world you want to live in.

Here are a few positive things that could help the UK thrive again if we all remember the three Ps and be POSITIVE, PRACTICAL AND PRINCIPLED.

  • A boost to investment in British business. If the country is going to survive and thrive after this EU exit, we will have to promote and support our own businesses like never before. Those that export to the EU could see demand rise as a result of the £’s weakness, although exporters could also be vulnerable to any policies introduced to gradually cut the UK off from the EU. Popular investment funds with a UK focus have fallen in value since the vote result by between 3 and 20 per cent, but we’ll have to back this country with our money if this experiment is going to work.  Funds that have a UK growth focus include AXA Farmington UK Mid Cap, Standard Life UK Equity Unconstrained and Marlborough UK Micro Cap Growth. Funding Circle is a peer-to-peer lending platform that focuses on loans to British businesses. Crowdcube and Syndicate Room are equity crowdfunding platforms for British businesses.
  • The growth of localism. On the one hand, this comes across as very Little Britain. On the other, buying locally is great for the environment and communities. An increase in the cost of foreign imports is likely to mean more bargain hunting on our back door steps. For financial services, this might mean using credit unions or local building societies, rather than HSBC or Barclays.
  • Stock market bargains, strong future growth. We’re not actually in favour of opportunistic buying – as a strategy, it is quite impolite, for one thing, and short termist. Also, we can’t all benefit from buying low. Having said that, having investors prepared to buy is vital to stop stocks falling further. Opportunities provide a floor, as this morning’s stock rally proves.
  • The growth of homegrown renewable energy. Energy bought from abroad is increasingly expensive in a post-Brexit world. Electricity generated by UK-based wind and solar is more secure and less volatile. For some people looking to save money and keep their bills low, this might be enough of a reason to switch in the coming weeks (We’ve launched a STAR SWITCHERS campaign too to help get you motivated).
  • Lower interest rates, for a little while, on mortgages. Lower interest rates and more quantitative easing helped us out of the financial crisis relatively unscathed. The hope is they will do the same for Brexit, limiting the impact of higher inflation and lower incomes on our disposable income. If you have debts in the form of mortgages, loans and credit cards, you will benefit in the short term while rates are lower (but be mindful that there is a high chance they will have to rise if inflation control is needed further down the line.)
  • Belt-tightening. It’s not good for the country if we stop spending altogether. But one good thing that did come out of the financial crisis was, for many, the habit of repaying debt and saving more. Companies will now be cutting their discretionary spending, and while we wouldn’t advocate holing yourself up indoors and trying to self-sustain, it might be prudent to cut the cloth on unnecessary expenses.
    Eden head shot1

    Some fab blogs from Jen Gale – My Make Do and Mend Life and Jack Monroe, Cooking on a Bootstrap, to help you cut your household costs.