We may have some political drama going on now in America. But, economically speaking, things are mostly looking up: Unemployment has fallen steadily over the last eight years, interest rates are still at historic lows and, overall, the market’s been on a tear since November—with the Dow recently surpassing the 20,000 mark.
You might remember that Britain, our oldest ally and one of the world’s largest economies, is going through some political drama of its own—and it’s more than enough to overshadow any signs of economic growth.
We’re talking, of course, about Brexit: the stunning decision by voters last June that Britain should exit the European Union (Britain + Exit = “Brexit”).
Why break up with the EU?
The European Union, which Britain joined in 1973, gives U.K. businesses a vast, tariff-free market of more than 510 million people, and established London as the financial heart of the EU. Many were content to keep it that way and feared pulling out would be disastrous for the U.K. economy.
But others took issue with some requirements that came with being part of a union of 28 countries. They resented the fact that the U.K. contributed more money than many other member states to the EU budget, and bristled at EU-wide regulations over everything from food coloring to social policies. In the end, those who wanted out won 52 percent to 48 percent.
Now, Prime Minister Theresa May must shepherd a complicated breakup: The first step is to set a date, likely in March, for the start of the two-year negotiations.
So, how does that affect us in America?
A lot remains unclear, but here’s what we know:
1. It’s a good time to visit England.
The UK currency, the pound sterling, is at a 30-year low, falling more than 16 percent against the dollar in just the last six months. Translation: A hotel room that cost $300 last June is now around $250. And a round of golf at Scotland’s famous Old Course at St. Andrews would set you back $104, saving nearly $20.
With the dollar up, fuel prices down and increased competition from low-cost carriers—Icelandic budget airline Wow is now offering round-trip tickets from U.S. cities to London for less than $350—airfares are also more affordable than a year ago.
2. The stock market could have a bumpy ride.
Our money going farther in the UK is a good thing—but a dollar that keeps rising can be disruptive. For one, it makes it harder for American companies to sell their products overseas, which could affect earnings—and stock prices.
We can also expect trade talks between us and Britain, as well as the US and EU, to cause market jitters. (Add that to other agreements President Trump’s revisiting, like NAFTA and the Trans-Pacific Partnership.)
“The rules of the game we’ve taken for granted for so long are starting to be redefined,” says Rohitesh Dhawan, director of the Global Brexit Centre of Excellence at KPMG UK. “The only thing we can be certain of is there there will be lot more market volatility.”
What can we do?
Try not to get too caught up in day-to-day fluctuations. While it’s tempting to want to do something when the market drops, knee-jerk reactions can lead to costly investing mistakes, like buying high and selling low. It’s generally smarter to stay focused on long-term goals and ride out ups and downs. Historically, the stock market has recouped losses and risen significantly over time.
In the meantime, if you want to visit England, now is a great time to plan your trip. Although new data from the U.K. government show the number of North Americans traveling to England has been climbing since the Brexit vote, February and March are considered off-season months, meaning fewer crowds and better deals.
February 1, 2017