The value of the Pound since Brexit has been moving up and down. Here is a quick look at key changes since the vote
The Brexit referendum was held on 23 June 2016. Several events have had an impact on the economy and the political scene in the UK. Initially, it was thought that the country would vote to remain in the EU. Unfortunately, the decision to leave caught markets by surprise and the Pound fell to levels never witnessed in a long time.
Here are some of the key events after the EU referendum
Once Britain voted to leave the EU, shockwaves rent across major financial markets. The Leave side won by a slim margin which led to the resignation of David Cameron. The Pound went down by 9.09% on average in two weeks and was trading at €1.1663 by 7 July 2016. The value went down slowly over a period towards the start of October.
Article 50 Likely Trigger
Theresa May took over from David Cameron. It was being debated whether May could trigger Article 50 without approval from the parliament. This legal challenge brought some anxiety in money markets and let a steep 4.6% fall in the value of the Sterling from around €1.1579 on 1 October 2016 to an all-time low of €1.1044 by 11 October 2016. However, the high court ruled that parliamentary approval was mandatory.
Britain Likely to Leave the Single Market
Theresa May had a hardline approach towards Brexit and it was expected that she would announce that Britain would be leaving the EU single market. This market allows member countries to trade without high tariffs and move production resources across the border with ease. The speculation led to the drop in the value of the Pound from €1.1767 around 3 January 2017 to a new low of €1.1361 by 16 January 2017. The speculation went down later in the year and the Pound gained some ground. However, it did not return to the start of the year levels.
The Triggering of Article 50
Article 50 was finally triggered on 29 March of the same year. During the run-up to the date, speculation made the Pound lose more value, settling at €1.1537 at the end of the day when the article was triggered.
2017 General Election Results
Theresa May against the advice of her election guru Sir Lynton Crosby, called for a surprise election to shore up her numbers and pass relevant Brexit legislation. However, the result was not what she expected. She lost her majority in the parliament to the Democratic Unionist Party. This created some form of uncertainty in the market, as there was no clear political direction. The majority of Democrats did not share her views on Brexit.
This caused the Pound to slip further against major currencies and settle on a seven-month low of a mere €1.1287. The gloomy economy went on for quite some time as both parties adjusted themselves to run the country. All this time, there was pressure for Theresa May to quit the office.
BoE Steps in
The instability which ensued led to the slowing down of the economy and a further drop in the rates. There was a rise in the cost of living, which included food, fuel, and imports. Inflation rates went up to 3%, the highest increase in half a decade. The Bank of England stepped in and raised the interest rates, something that it had not done in a decade. This lowered the value of the Sterling to around €1.11. It was expected that further interest rate raises would happen.
The second phase of the negotiations started. Within a short period, the UK and EU make headway, especially in EU citizens’ rights and the transition period. The issues of the Irish border remain. The markets respond positively with a 1.70% increase in the value of the Pound to stand at €1.14. However, the value goes down again after the euphoria dies out. The value of the Pound stood at €1.13 by the end of August that year partly because the foreign secretary, Boris, stepped down.
The Brexit deadline was set to 29 March 2019 to give other EU countries time to discuss and sign the deal. British MPs were also given up to 29 October 2018 to vote on the deal. Markets responded to this as good news and shot the value of the Pound by 2.50%. The money market got better when Prime Minister Theresa May announced that the cabinet had come up with a draft withdrawal agreement.
Unfortunately, the market does not remain this way for so long. Before the Extraordinary meeting in Brussels to finish the UK withdrawal on 15 November 2018, the Brexit secretary Raab quits, the chair of the 122 Committee is removed by a vote of no confidence several others stop. The anxiety created lowered the value of the Sterling by 1.85% to stand at €1.11.
Fears of a No Deal
Independent assessments of the agreements pointed to a no-deal. Besides, the parliament was having heated debates that ended up with a vote of no confidence in Theresa May. Boris Johnson took up the office. The deal vote was also delayed by a month, which raised the pound value to €1.16.
The new PM was committed to having the UK out of the EU by the new date, 31 October, whether or not there would be a deal. This caused jitters in the market with the value of Pounds going down. However, the market rebound when the no-deal package was barred. The value of the Pound went up again to €1.19. Finally, the UK left the EU on 31 January 2020.
What Will Happen To the Pound after Brexit 2020?
The UK has up to the end of the year 2020 agreed to various trade deals with the European Union. The Pound went up again by 1.85%. However, there is still more that the country has to do now that it has to renegotiate deals with countries that traded with it under the EU cover.
This value will be determined by how good the agreements with other countries will be. Key among them is the setting of tariffs, a single market, and deals with other trading blocks around the world. A little up-and-down movement is expected. The hopes are high that the conservative party will get a friendly deal at the end of the year.
Other factors that may influence the value of the Pound include:
- How well the UK takes advantage of the transition window to consolidate its economy
- The quality of the deals that the country strikes with the EU and the rest of the world
- Article 49: If the UK decides on reapplying to join the UK, this may have a significant effect on the Pound
How Much Did the Pound Drop After Brexit?
It remains at a lower value than it was at the start of the Brexit process, with many market analysts putting the decline at between 12% and 14%. This figure is the average decline as the value has been going up and down between the date of the referendum and the date of leaving.
Hard Brexit Effect on the Pound
If the UK does not come up with a good Brexit deal by the end of the year, the Pound is likely to take another hit. This is because investors will find the cost of doing business a little higher than the rest of the European countries due to barriers such as tariffs. The UK will also lose a substantial market in terms of trade are not favourable.
Brexit Effect on Euro Rate of Exchange
The Euro rate is partly caused by the movement of the Pound and other factors affecting the Eurozone. While the Pound against the Euro rate has been good, a few countries have been having financial problems, thereby offsetting the significant change in the value. It remains to be seen how both currencies will behave when the final deal is struck by the end of the year.
Pound To-Dollar Forecast after Brexit
The post-Brexit movement of the Pound against the dollar depends on the same factors that affect its value against the Euro. Over the last four years, the exchange rate for dollars to pounds has been fluctuating with a greater margin than the Euro against Pounds despite being triggered by similar effects. However, the Pound value is expected to go up in the end. This will be made possible by good deals between the UK and the Americas and the current political climate in the US. The latter reason is expected to weaken the dollar, creating a marginal increase in value for the Pound.
At the moment, any foreign companies registered in England and Wales will not be required to take any legal changes to their entity. They will continue working with the same licenses as they had in the past. However, there will be changes in EU citizen rights and trade with mother companies out of the country. Overall, the value of the Pound is expected to rise steadily and eventually return to its pre-Brexit value but will take time.