This year is likely to be remembered as a pivotal year for the world, both economically and politically. Brexit and Donald Trumps election victory are two of the biggest events to take place for a generation, since theyre both likely to have a huge impact on the worlds future. But which one will have the most significant impact on your finances? Will Brexit or Trump pose the biggest threat to your financial future?
Brexit hasnt yet produced many challenges for the UK, European or global economy. Aside from a weaker pound, it has been very much business as usual. However, thats likely to change in 2017 when the UK invokes Article 50 of the Lisbon Treaty. This will kick off a two-year period of negotiation thathas the potential to cause a high degree of uncertainty regarding the economic and political future of the UK, European and global economies.
Although its likely that a deal thatallows both the UK and EU to prosper in the long run will be signed, in the meantime both sides are likely to take a tough stance on negotiating. As things stand, it seems difficult to envision the UK having full access to the single market without concessions on immigration from the EU. However, its in both sides interests to find a common ground thatworks in the long run, from both a political and economic standpoint.
Therefore, while Brexit is likely to cause volatility and uncertainty for your financial position, in the long run its unlikely to have a significantly negative impact due to both sides essentially wanting stability and prosperity.
The great unknown
However, Donald Trumps election victory could prove to be somewhat more challenging for investors in the UK and abroad. In the short run, uncertainty surrounding his election could cause share prices to come under pressure. While this hasnt happened yet, evidence that Trump will rule as a populist rather than pragmatic President could cause investors to become increasingly nervous regarding his four-year term.
For example, further comments on the delivery of policies such as renegotiating trade agreements and the use of protectionist policies to save US jobs could lead to increased volatility for asset prices. And if such policies are enacted while at the same time Trump adopts a firmer stance with China and a softer stance on Russia, the outlook for the world economy could be downbeat. This could directly impact on asset prices as well as job opportunities in the UK, Europe and the rest of the world.
Although the UK economy is the fifth largest in the world and economic difficulties here would cause uncertainty across the globe, the reality is that the US remains the worlds most important economy. Therefore, uncertainty and potential economic challenges in the US are likely to have a far greater impact on all of our finances than Brexit. As such, Trumps victory may pose a bigger threat to your finances than our issues with the EU, with both events being tough to call and highly uncertain.
Are you prepared for Brexit?
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