Has the sterling slide only just begun?

Tomorrow is 2 months since the Referendum was held and despite the vote Leave and the pound dropping we are still no closer to knowing exactly what Brexit will entail. For most people in the UK life is exactly the same as it was prior to the Referendum and with British sport smashing records at the Olympics, one of the hottest summers in years and retails Sales up, consumers are clearly not overly concerned about the Brexit and implications.

The Unemployment picture is very favourable and so far none of the worst-case scenarios have been realised.

Despite the weaker pound presenting some benefits to exports the UK as a net importer does not overly benefit from a weak pound. Simply put the UK buys more from overseas than it sells. That means when the value of the pound is low it pushes up costs for everyone. Two months is not a long enough period to be drawing any firm conclusions but I feel with all the most up to date and recent economic indicators for July on business coming in worse it would be mistaken to assume it will be plain sailing ahead for the UK and I do feel the pound has further to fall. The most relevant data so far on business activity showed big declines in Services and Manufacturing activity in July. We will not get the full picture on UK economic growth until October. Unemployment data is always a rolling 3 month picture so we won’t know exactly what is happening there until October or even November. Even then making people unemployed takes time so any deterioration here will likely be a slow burner.

This week we have some important news on the UK in the form of Mortgage approval data on Wednesday and then the latest GDP revision on Friday for Q2. The mortgage data Wednesday might be the most useful since it is after the vote and will give some indications on the housing market, a key feature of the UK economy.

What will Britain’s new relationship with the EU look like?

There is still huge speculation over whether or when Article 50 will be invoked. There are still many questions over what the relationship with the EU will entail but access to the all-important Single Market is unlikely to come cheaply. What is becoming apparent is that London’s reign as the financial capital of Europe is going to fade and this will have big economic consequences as these lynchpins of the UK economy struggle. It is likely to be many months before Article 50 is invoked and it seems more and more options are being ruled out. For now we must hope for the best but for most businesses that simply won’t do and I expect contingency planning to be in place which will only accelerate any declines. So let us enjoy the current good news, personally I would be sceptical about how long it will last and clients buying and selling the pound should be ready to act.

With the above in mind, getting in touch with us regarding a transfer could help you make an informed decision. Our trading floor number is 01494 725 353.


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