The progression of trade deals following the triggering of Article 50 will be crucial to the value of the pound. Trade deals have been known to be troublesome and time consuming. The current target of two years is unrealistic, as Theresa May has finally admitted. Diplomats in Brussels will say that Britain will have to learn the hard way in regards to negotiations and the UK will not be allowed to cherry-pick. The EU obviously are not happy with the situation and at first I do think deals may not be particularly forthcoming, however a free-trade deal is there to be struck.
Denying the UK a free trade deal would be harmful for both the UK and the EU. If tariffs used by the World Trade Organisation are utilised there will be larger barriers and trade would slow. The task for trade negotiators now is to keep trade flowing and not grind it to a halt.
Theresa May’s wish is to leave the single market and the customs union so trade deals would be very different. This could give EU member countries the opportunity to raise costs on British exporters, there would be issues should this scenario arise with both sides losing. Germany would welcome a free trade agreement, they export €50bn to the UK each year. Machinery, automotive and the chemical sectors would all be at risk which would be detrimental to the German economy, the engine room of the Eurozone.
As negotiations progress there will be many troublesome demands and no doubt drama. But, let us take a step back and look at the big issue here. Europe needs growth, a free trade deal would be a sensible option, both sides will not be prepared to lose vast volumes of trade. If a free trade deal becomes more apparent expect the pound gain value against the majority of major currencies.
UK GDP data is due in today and there is expected to be a decline to 0.4%. There is the possibility the data could come in worse than expected due to the rise in inflation, I feel we are yet to really see the effect of a rapid rise in inflation, but it is on the cards. If GDP falls further than expected due to inflation hitting consumer’s pockets we could see a fall in pound value.
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