The Referendum did not outline in detail what leaving the EU would entail. Technically the UK can leave the EU and if approved by the remaining members of the bloc, could find itself accepting lesser membership. The question of Soft or Hard Brexit could be very important to the value of Sterling in the months ahead.
If the UK accept a lesser membership from the EU, the UK would have no choice but to pay into the EU budget and accept free movement of people, two of the primary concerns as to why the UK voted to leave the EU. Whilst I do not see this option being viable for a number of reasons, the UK could look to remove itself from the bloc entirely through small steps of disintegration. One must understand that untangling 40 years of social, political and economic ties with our European neighbours will involve endless debates and time.
By mitigating the damage left by the vote and to allow businesses and consumers to adjust in smaller stages, the impact on the economy and Sterling could arguably be less damaging.
This of course depends on what deal the UK get. And given the growing concern of right wing political parties in Europe, the EU may want to play hard ball to prevent other nations leaving the bloc. On the other hand, a hard Brexit is jumping into the unknown and could have much worse implications for Sterling. If Theresa May follows through with her famous ‘Brexit means Brexit’, she needs to address the needs of say, the Financial sector, who rely heavily on the EU given London’s status as the financial hub of the world.
Then of course, what happens to EU migrants already in the UK? And how will business be impacted for example, by not having the freedom to expand into European territory?
Will the UK begin imposing tariffs on EU imports? If so, will EU members amend their prices to cost in these changes? How will this impact the price of goods in the UK and thus spending.
Whilst the UK remains in limbo, there is an argument that Sterling could find support before the official announcement of its departure from the EU.
Whilst the UK has seen positive economic data since June, much of the data has been prior to the vote, during the vote or a combination of the two.
There are other factors that have helped say, retail sales, the strong British summer and perk in tourism are just a few to mention. It may be some time before we truly understand the implications of the vote, with economic data likely to take months before it spills into economy. If there are no announcements of Article 50 before the new year, and economic data continues to hold steady with the run up to the US elections, I am of the opinion that Sterling could find further support.
However, any announcements of Article 50 or plans for the UK’s future could see Sterling tumble once again. The Pound has found safety during this state of Limbo but once Article 50 begins, the UK will begin the countdown to its departure from the bloc. Whilst it does remain on the backburner for now, some sources indicate early in 2017.
I strongly urge you to keep in touch with our brokers here at currencies.co.uk, whilst this report highlights some of the key points surrounding Brexit, there are hundreds of potential outcomes and scenarios that could impact your currency requirements over the coming weeks and months. It is our duty to help our clients secure the best rates possible which is why we score a 99% positive feedback on Feefo.
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