How Will Brexit Affect The UK?
The world economy has been turned upside down since the turn of the new decade., No sooner had we gotten used to living in the year 2020, a new deadly virus called Covid-19 was going to change our lives forever and the way we live. Currency markets around the world were quickly adjusting to the change in times and the uncertain future for the world economy. Covid, Coronavirus, lockdowns, pandemic, and vaccinations were just a few of the buzzwords we couldn’t escape from over the next 2 years. It is easy to forget that before the pandemic, there was a word that rarely made it out of the headlines here in the UK between 2016 and early 2020. The word of course being, BREXIT. Brexit quickly became the biggest talking point as the nation was split between its decision to vote leave to the European Union or remain a member of the state. Today, people still wonder: “How will Brexit affect the UK?”
Brexit’s Impact on The Currency Markets
It was clear that within the currency market, the UK staying a part of the EU was the favoured option, as leaving would take the UK into unknown territory and with many speculating that it would have huge ramifications for the UK economy. The more it became apparent that the possibility of the UK voting to leave in the 2016 June referendum was increasingly possible the more the British pound came under pressure and started losing value against most currencies, in particular against the euro and US dollar. Prior to the Brexit discussion, the pound had reached highs of 1.30+ against the euro and 1.40+ against the US dollar. A reflection of the growth and optimism being seen in the UK economy at that time. However, as the referendum voting day drew closer, it became clear leaving was becoming a real possibility, and as we all know now on 23rd June 2016 the UK voted to leave the European Union after 43 years of membership. As soon as the vote was confirmed pound sterling experienced some if its biggest losses in a single day ever against every other currency. Losses in excess of 10% in a few hours were not uncommon.
Over the following days, weeks, months and years pound sterling has seen significant periods of recovery, but still to this day has failed to recover back to levels we witnessed before Brexit became such a big talking point and concern for UK economics. After the vote in 2016, many of us could be forgiven for thinking that the transition period would be done quietly and swiftly in the background. It proved to be anything but, over the next three years we saw the position of the UK Prime Minster change hands 3 times, 2 general elections were called, and many back and forth and disagreements between EU and UK negotiators. We knew and understood we were leaving the EU but what leaving would look like was a question no one was able to answer or agree on. One thing the currency markets don’t like to see is uncertainty, and the continued uncertainty surrounding Brexit and what it really would look like, (remember the terms Hard Brexit or Soft Brexit?) was a great cause for concern and kept pound sterling struggling to make real gains against its counterparts like the Euro and US dollar. They were times when we saw considerable optimism regarding Brexit and the pound would be boasted by this and rally, but too often these moments were short lived, and the currency would too soon be down again.
With the pound sterling remaining so volatile during the years of Brexit, it made it difficult for those looking to exchange their pounds into other currencies, keeping updated with the ongoing affairs of Brexit was a big part of tracking the movement of the exchange rates. With Brexit still being viewed as a negative move for the UK the pound remained low compared to the exchange rates we saw prior to the start if the Brexit debate. The ripple effect of the pound being lower against other currencies is the cost of goods and services being imported into the UK goes up, with the increased prices having to be passed down to the consumers. The flipside to this is the UK becomes more attractive for overseas investors buying UK services and goods, as their prices come down.
Moving forward to the start of 2020, the UK had just voted in a second general election in 3 years, giving Prime Minster Boris Johnson the power, he needed to get a Brexit deal done. Without a doubt, the UK was about to move into a new era of the Brexit debate, with us now knowing the terms and conditions of the move, and looking forward to a clearer picture in the future. This optimism was reflected in the currency markets with the pound sterling seeing its best performance against its counterparts in years. This time, and of no fault of Brexit or the politicians in charge, a deadly virus we all know as Covid-19 was about to change the world, and again pound sterling was one of the biggest casualties in the market losing record values against a majority of currencies especially the euro, US dollar, Swiss Franc and Japanese Yen. Brexit news began to fade into the background it seemed.
Yet though not at the top of discussions understandably so Brexit was still happening. Now that we have come out of the most difficult part of the pandemic, the UK like the rest of the world is experiencing difficult times with limited supply chains and rising prices, inflation figures are at record highs. It would be unfair and wrong to lay the blame things solely on Brexit, however many have argued that the new laws in place following Brexit have contributed significantly adding more difficulties rather than solutions, with more red tape to overcome in trade deals leading to increasing prices and the inability to employ foreign workers in industries from farming to aviation becoming big problems for firms. Airlines are struggling with huge increase in demand this year, previously they would have recruited staff from overseas countries, as things currently stand, Brexit restrictions don’t allow them to do this or at least not a in a cost-effective way.
It is safe to say, there is a lot still to be ironed out with Brexit, no politician could have predicted the pandemic, but it was always argued that Brexit would make things better for the UK and make the nation stronger allowing the economy to succeed, being more resilient.
Once again after a strong start to 2022, the pound sterling has come under pressure again in recent months, losing value against currencies like the Euro and US dollar among others, a better working Brexit doesn’t hold the key to better-performing pound, but as recent history shows us, it will defiantly play a big part.
Apart from more uncertainty, it is impossible to predict how Brexit will affect the UK and what direction the British pound sterling and other currencies will be moving in. That is why it is important to have a no-obligation chat to discuss your current and future currency exchange requirements with your currency trader as soon as possible, this way we can make sure we keep you in the know with what is happening and how it affects the cost of your next exchange, our rate alerts can save you significant sums of money, as we watch the exchanges rate all day, so you don’t have to. We also have options like forwarding contracts where you can secure the cost of your purchase now for up 18 months, taking away the risk of continued volatility and increasing your final costs.
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