Now that there are only 39 days to go until the UK is supposed to leave the EU, it's a good idea for clients that are involved with sterling currency transfers in the short, medium or long term to form a strategy for your currency requirements.
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Currently UK Prime Minister Theresa May is trying to negotiate with the EU for alternative arrangements to ‘Irish backstop’. The backstop is an insurance policy where the UK and EU will form a temporary customs arrangement, preventing the return of a hard border in Ireland. However, the problem is that the UK could end up in the customs union indefinitely and MPs within Parliament feel that this arrangement doesn’t respect the result of the referendum which took place in June 2016.
The Prime Minister has written to the 317 Conservative MPs this weekend in a desperate appeal for unity as she is concerned that she will lose the next meaningful vote on the 27th February. Furthermore Steve Baker the Deputy Chairman of the European Research Group - which has 100 MPs supporting it - told the Sunday Times yesterday that the backstop had to be removed from the withdrawal agreement before members would support Theresa May’s deal.
Unless the Europeans agree to remove the backstop in the next 9 days which is extremely unlikely, it looks like Theresa May will lose the vote at the end of the month. Reports suggest that the cabinet believe if the PM loses the next vote, Parliament will end up taking control of the negotiations.
If Theresa May’s deal isn’t backed on the 27th, there will be another vote on Yvette Cooper and Sir Oliver Letwin's amendment which is to ask for an extension of Article50. This will mean the UK won’t leave the EU on the 29th March. Personally, I expect that this is the most likely outcome therefore I expect the pound to struggle on in the months to come.
The other two likely outcomes in the upcoming 40 days is that the UK crash out of the EU with a no deal, which I believe would see the pound crash against all major currencies or Theresa May will persuade MPs to vote for her deal and the pound would gain value. However for clients purchasing a foreign currency, don’t expect the pound to strengthen considerably if the PM secures a deal, as we are still leaving the EU and UK economic data recently has started to decline which is a concern.
Governor of the Bank of England Mark Carney warned earlier in the month that he expects 2019 to be the slowest year for growth since the financial crash in 2009. Only a week later December GDP numbers declined, supporting the Governor's statement. This week the UK are set to release their latest jobs figures. If it’s the case we have seen a slowdown and Unemployment has risen whilst average earnings has fallen, this should alarm clients buying a foreign currency as the ongoing Brexit saga is clearly having an impact on the UK economy.
For clients that are buying properties abroad and have had offers accepted, the golden question is whether they should buy their currency now.
With growth numbers in the UK declining due to the uncertainty of Brexit and Theresa May unlikely to get a deal through the House of Commons at the end of the month, I expect that the pound could gradually lose value making property more expensive to buy. Over the last 12 months GBPEUR mid-market prices have fluctuated between the 1.09s and 1.16s, and with current mid-market levels sitting in the 1.14s I think it’s a good rate in the current climate and therefore buying upfront in my opinion is a good strategy.
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