Jeff PrestridgeApr 5 2017

The road to Brexit looks bumpy

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Thank goodness Article 50 has now been triggered, although I cannot imagine that the rest of the journey towards Brexit is going to be an easy one. Many obstacles lie in wait, that is for sure, in the run up to March 2019 and the grand European Union exit.

There are obstacles we all face – be it the government (increasingly irritated by the sabre rattling of Nicola Sturgeon and the truculence of some Euro-bureaucrats), businesses and households.

The road ahead is anything but yellow-bricked – or paved in gold – and looks uncertain with many dangerous twists and turns beyond the immediate horizon.

Of course it must be said that the economy has held up surprisingly well in the afterglow of the Brexit vote, helped in no small measure by the continued weakness of the pound.

In the coming months, many household finances are going to come under pressure 

The UK stock market has also remained buoyant, engendering a sense of warmth among investors with Isas and pensions. Again the weak pound has played its part in maintaining confidence in UK equities.

Dark clouds on the horizon

Despite the confidence, there are some dark and heavy clouds gathering. In the coming months, many household finances are going to come under pressure as a panoply of price hikes kick in.

Some of these increases have just come into effect. From the start of the month, most people have been hit with bigger council tax bills, rising on average in England and Wales by 4 per cent.

Then there are higher water bills (up on average by 2 per cent) and more expensive prescription charges, NHS dental checks, postage stamps and TV licences.

Even if you want to get away from it all for a while, a long-haul flight will attract a higher rate of air passenger duty. Bang goes my trip to Australia to see my nephew.

No wonder Hannah Maundrell, editor in chief of website money.co.uk, dubbed April 1 "National Price Hike Day". Bring back April Fool’s Day, it is far more fun.

After factoring in a raft of increases from those nasty energy and mobile phone suppliers (the likes of EoN, nPower, Scottish Power and Vodafone) Money.co.uk calculates that households will have to find an average £90 over the next 12 months to cover the increased costs.

You might think £90 is not a lot of money, but Money.co.uk’s analysis does not tell the full story. Far from it. Insurance premium tax increases will apply from June, pushing up the cost of many forms of cover – from home insurance through to motor cover, pet cover and private medical insurance. Holidaying abroad is also costing more as the pound continues to take a pummelling. And, of course, probate fees are rising from next month.

Then there is the wider menace of inflation, which has now crept up to 2.3 per cent, hitting households in the pocket as well as undermining the value of their cash savings. Earnings growth is struggling to keep up with this surge in inflation, especially as most economists believe inflation could hit 3.5 per cent before the summer is out.

Not a pretty family finance picture. Even one in five of those who voted for Brexit now feel pessimistic about the country’s economic outlook according to research by insurer Zurich. Understandably, 60 per cent of remainers are gloomy about the future.

Batten down the hatches

For most households, it will be a question of battening down the hatches over the coming months and ensuring that they are not overpaying for essentials (mobile phone contracts, utility bills and key insurances). Shopping around should be the order of the day as one of my colleagues discovered to his delight (and annoyance) when he saved more than £600 on motor insurance costs for his two cars by refusing to accept the renewal quotes offered him. So much for rewarding customer loyalty. When will financial services companies shake off their bad habits?

Despite this worrying backdrop, I hope that households will continue to save for the long term, maybe buoyed by higher annual Isa contribution limits. It is rather alarming that the nation’s savings rate is now down to the low levels last seen in the aftermath of the 2008 financial crisis.

The omens are not particularly good. Already some investment experts are talking about markets being overvalued. It is not a consensus view by any means, but if consumer spending drops, GDP growth falters and company earnings dip, the stock market could well correct. This could well spook many investors out of equity markets. Where do they then go? Cash deposits paying meagre rates of interest?

Nerves of steel will be required over the coming months. So financial planners, time for you to earn your crust by reassuring clients that you will be with them all of the way, holding their hand whenever necessary and encouraging them at all times to invest in their long-term future.

Jeff Prestridge is personal finance editor of the Mail on Sunday