If you have any presence on social media you have likely seen #Brexit popping up everywhere the last few weeks, and even more so yesterday. Britain held a referendum yesterday on whether or not to remain a part of the European Union and after all the votes were tallied up it was decided they would leave. I’m actually pretty shocked by the decision, I knew it was going to be a close vote but I really thought the ‘remain’ side would come out on top but it ended up being the ‘exit’ side with about 52% of the vote. David Cameron has already announced that he will step down as Prime Minister by October (he was in the stay camp). Global markets have also taken a hit today and the British Pound plummeted by 10% reaching it’s lowest level in three decades.
All this doom and gloom seems to spell trouble for Britain. A bid advantage of being in the EU was free trade between European nations and that will now come to an end for Britain. Being a net importer, they are going to face issues on getting the goods they need into their border as I’m sure the EU will force their hand with some pretty hefty taxes. The decline in currency will also impact anyone from Britain wanting to travel outside the country and the volatility in the markets is already impacting people’s investments.
Things going from bad to worse for #pound. Fall in last 12 hours bigger than Black Wednesday in 1992. #EUref pic.twitter.com/W8pcJDjQYF— Jon Williams (@WilliamsJon) June 24, 2016
What does all this mean for Canada?
Britain and the European Union may be way across the ocean from us but this doesn’t mean we will be left unscathed by the referendum results. Even though the British currency is taking a hit it doesn’t necessarily mean this is a good thing for us. The US dollar is seen as a safe haven right now and that will likely mean an influx of people buying US dollars which has a negative impact on the Canadian dollar, which has already been hurting the last little while.
Canada also has a trade agreement in place with the EU and through this Britain sits as our third largest trading partner. Leaving behind the EU will take Britain out of that trade agreement and could potentially limit Canadian imports into the nation.
Global market volatility is a biggie for anyone with investments. Even if you aren’t directly invested within Europe you are likely to see some fluctuations in your portfolio and if you are, well, hang on! If you are feeling like taking a jump, the big drop in UK markets mean it may not be a bad time to buy some British stocks.
A Canadian interest rate hike will likely also be delayed which will keep mortgage rates low and wont do anything the rising concern of a housing bubble. A strong US dollar and weaker Canadian dollar puts pressure on the Bank of Canada to leave rates as is. Good news, bad news I suppose. For those with current variable mortgages or looking to re-negotiate a mortgage soon it means you wont see an increase in your payments but the scary housing market situation will be sticking around.
Your summer vacation to Britain may have just gotten cheaper. There was a cheap seat sale to Scotland floating around last week so if you jumped on that now might be a good time to load up on British pounds and save yourself some more money on your vacation. With that said, if you have plans to vacation just about anywhere but Britain you are likely looking at a heftier price tag because of the low Canadian dollar.
We’re in for a bit of a rough ride in regards to currency and the equity markets for the next while. Canada obviously wont be impacted as much as Britain but we’re also not completely sheltered either. The process of the UK actually exiting the EU will be lengthy and it will be interesting to see how that is actually accomplished and plays out…we’re looking at years not days.