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What the election result means for your money

Private investors are being warned to brace themselves for volatility as markets reacted to the general election result, which has increased uncertainty over Brexit negotiations and thrown party manifesto pledges into question. So what could it all mean for your personal finances?

Investment

Investment experts urged private investors not to panic as UK markets opened, with many fund managers anticipating buying opportunities amid the uncertainty.

Stock markets were driven by currency movements in early trading, with a decline in sterling boosting the share prices of the UK’s largest companies.

“The pound is going to be the barometer for the UK market,” said Maike Currie, investment director at asset manager Fidelity International. “A weak pound is good for international earners.”

The FTSE 100 index — dominated by companies with overseas earnings — rose by 1.3 per cent on Friday. The FTSE 250 — which is made up of smaller, more domestically focused companies — fell by 0.6 per cent.

Housebuilders and banks were among the largest fallers, and sectors like mining with high international earnings were among the biggest risers.

Centrica, the UK-listed owner of British Gas, was a surprise beneficiary as investors discounted the chances of a weaker Conservative party intervening in the energy markets.

Fund managers drew comparisons with market reaction in the wake of the Brexit vote last June.

“It was a Brexit-type basket of trades first thing this morning,” said Eric Moore, UK equity income fund manager at Miton. “Domestic stocks are getting whacked.”

Retail brokers said trading volumes were slightly higher than normal, but that retail investors were not reacting as strongly to the election result as they did to Brexit, with experts suggesting that uncertainty was holding people back.

“We still don’t quite know what [the election result] means,” said Mr Moore.

Other fund managers warned that international confidence in the UK might take a further hit. Tom Becket, chief investment officer at Psigma Investment Management, warned investors not to be “too parochial in their investment approach”.

“I still think investors would do well to find parts of the world that are cheap,” said Mr Becket. “For me Japanese equities are up there, and we still like emerging market equities.”

Mr Moore of Miton agreed: “If I was a global investor I would be looking at the UK and thinking — I could just ignore that and come back later.”

Richard Buxton, head of UK equities at Old Mutual Global Investors, was more optimistic: “Although a period of uncertainty will not be welcomed by the market, any further signs of a ‘softer’ Brexit, combined with the tailwind of still-improving global demand, could bode surprisingly well for UK companies.”

A “softer” Brexit might also boost financial services stocks and banks, added Russ Mould, investment director at AJ Bell.

Meanwhile, with so much uncertainty in the market, retail investors were warned not to panic. Mark Dampier, head of investment research at Hargreaves Lansdown, said investors should “resist the temptation to make short-term, knee-jerk reactions” given the range of possible outcomes over the next few weeks.

“In our view investors should continue to pursue their long-term strategy,” he said, advising that they should “sit tight or even buy if the opportunity arises”.

Currencies

The pound fell by about 2 per cent following Thursday night’s exit polls, but traders said hopes of a “soft Brexit” had prevented it from falling further as the election result became clear.

Nevertheless, the cost of a holiday abroad has risen for British families.

With sterling now at its lowest rate against the euro in 21 weeks, currency specialist FairFX said travellers would get €19 less or $23 less for every £1,000 exchanged — worth £17 and £18 respectively.

Tax

With the Conservative party expected to form a minority government with the backing of Northern Ireland’s Democratic Unionist Party (DUP), future policy implications remain mired in uncertainty.

A surge of interest in DUP manifesto pledges caused the party’s website to crash on Friday morning. It supported moves to raise the personal allowance to £12,500. But the prospects for an increase in the higher rate threshold to £50,000 — also promised by the Conservatives — are less clear, not least because Northern Ireland has a relatively small number of higher rate taxpayers.

The hung parliament is expected to have a damping effect on tax policy, as controversial measures that might be difficult to get through parliament are given less priority.

Arabella Murphy, head of private wealth at Maurice Turnor Gardner, the law firm, said: “For privately wealthy families, trusts and family businesses, this may lead to a period of relative stability without significant reforms, if changes cannot easily be agreed.”

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