Love him or loathe him, Donald Trump has beaten Kamala Harris in the race to the White House, but what impact is his win likely to have on the UK economy and your personal finances?
It might feel as though events across the pond are a long way from us here in the UK, but who holds power there, along with which policies they choose to implement, can have a significant impact on our economy and markets. This in turn directly affects investors, whether they have money in pensions or stocks and shares ISAs, as well as those with mortgages and savings.
Here, we look at what Trump’s win might mean for the UK economy and for your money.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
How Trump’s election win may affect the UK economy
The impact of the Trump presidency is likely to be volatile, according to experts, who warn that his unpredictability could mean a bumpy ride ahead.
Trump’s policies are expected to produce strong growth State-side, with the focus on infrastructure spending providing a boost to the US economy. However, this could push up inflation, leading the Federal Reserve to keep interest rates higher for longer.
US and UK interest rates typically move in tandem, so this may mean that we see fewer cuts to the Bank of England base rate in coming months, although a quarter point reduction is still widely expected this month. If the base rate doesn’t continue to ease, mortgage rates may remain higher for a while to come, putting already stretched finances under greater pressure. That said, higher rates are positive for savers, as they mean their returns have a greater chance of keeping pace with inflation. Learn more in our guide What can you do to manage higher interest rates?
Investors in US markets are likely to see Trump’s win as a positive, with his business tax cut proposals and plans to impose tariffs on imports potentially driving up the share prices of many of America’s companies. However, stock markets in China and Hong Kong fell following the election result, due to the proposed tariffs on exports to America.
Jason Hollands, Managing Director of Bestinvest by Evelyn Partners, said: “A core component of the Make America Great Again – MAGA – agenda is supporting domestic production, which means encouraging the reshoring of manufacturing jobs that have gone overseas and penalising companies that move production abroad. By way of example. Trump proposes a modest reduction in corporate tax from 21% to 20% but a deeper cut to 15% where products are made in the US.
“Trump sees his tariff proposals as an incentive for foreign companies wanting to sell goods into the US market, to set up factories in America. Trump is also a climate change sceptic and supportive of energy independence, so would rein back on the green agenda and encourage US oil and gas production which he sums up under the slogan ‘drill baby, drill’.
“Taken as a whole, if the Republicans achieve a clean sweep of Congress and the Presidency – a so-called ‘Red Wave’, the agenda will be pro-domestic growth – via less regulation and tax cuts – but also inflationary given that tariffs on imports are likely to drive up the cost of goods. That should prove a tailwind for US equities, but a headwind for long-dated US bonds as the deficit would continue to balloon. This explains why the bond markets have seen a significant rise in US Treasury yields recently, as they factored in the possibility of a Trump win.”
Bitcoin jumps following election result
Bitcoin surged as Trump closed in on election victory, as he has previously pledged to make the United States the “Bitcoin and cryptocurrency capital of the world”. This is despite him previously declaring cryptocurrencies a scam during his first presidency.
Russ Mould, Investment Director at AJ Bell, said: “Bitcoin is the one asset that was always going to soar if Trump returned to the White House. A brief jump to $75,281 put the cryptocurrency at a new all-time high and fired up traders to speculate when, not if, it will smash through $100,000. Trump has already declared his love of the digital currency and crypto traders now have a new narrative by which to get even more excited about where the price could go.”
Cryptocurrencies get their name because information is secured using cryptography, transforming it into a form that unintended recipients aren’t able to understand. New coins are ‘mined’ using computers to solve difficult algorithmic problems. Once these are solved, a token for the relevant cryptocurrency is created, and the computer that found the solution gets this token.
One of the biggest problems with cryptocurrencies is that unlike most investments, it’s not a productive asset – like a company that sells things and makes money – so there is no income on your investment, such as dividends or interest. This means that when you invest in cryptocurrencies, you’re essentially gambling on whether their value will rise as markets expect them to ultimately end up as a credible currency like sterling or the US dollar, or if over time, they become obsolete and worthless. They are therefore definitely not for the faint-hearted. Find out more about the risks of investing in cryptocurrencies in our article Understanding Bitcoin and other cryptocurrencies.
Keeping calm in volatile times
Such a big political change, which brings with it much uncertainty, makes it more important than ever to check where your money is invested, especially as many pension funds have significant exposure to the US. You can find out more in our guide Where is my pension invested?
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
In the short-term at least, as mentioned, experts expect the election result to boost US stocks, but the future is much less certain. Bear in mind that investing is recommended for the longer term with the aim of building your wealth over a period of many years, and markets can and do experience significant dips over time, so you’ll need a strong appetite for risk. Learn more in our article How to protect your pension from market volatility.
Investors who feel positively about the election result and perhaps to want to invest in a number of US companies can do so through UK-listed pooled funds such as investment trusts and open-ended investment companies (OEICs), which can potentially help to reduce the volatility that can come with investing in just individual shares. Of course, you need to bear in mind that investing in US shares, as with any overseas investments, involves currency risk. A weak pound boosts the value of your overseas investments, while a strong pound reduces their value.
Lindsay James, Investment Strategist at Quilter Investors, said: “ “Volatility is likely to be the defining feature of this presidency. With the future of Ukraine now in the balance, and geopolitical risks seemingly increasing every day, investors will be best placed to try to block out the noise, remain invested and base their decisions on the fundamentals of corporate America, instead of the measures enacted out of the White House.”
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