The Volatility of the Pound since Brexit

October 19, 2016 / Any Other Business

Since the UK voted to leave the EU in June there has not been the economic collapse that many predicted however the pound has been volatile. Since Brexit the pound at one point fell to a 31 year low trading at just $1.27 effectively wiping billions off the value of the UK biggest companies. This fall was greater than the one seen in the immediate aftermath of Brexit.

The pound crashed again on the 7th October in the Asian markets falling as much as 6%, the greatest fall since Brexit. The main reason for the volatility is a lack of confidence in exporters and their fear about the UK leaving the single market. This has been exacerbated by Prime minister, Theresa May, stating last Sunday that she would trigger article 50 to begin the process of leaving the EU. The media coverage of Brexit has also given exporters cause for concern and it is thought that the latest dramatic fall in the pound was the result of a news story regarding tough Brexit negotiations; proposals for a hard Brexit with the focus on immigration controls rather than trading within the European single market.

The impact of the depreciation of the pound is that exports become cheaper while imports into the UK become more expensive. If your business exports goods then demand is likely to rise however if your business and your manufacturing process relies on imports then your costs of production are going to rise, obviously this is going to impact on your profits especially if you do not export your goods and cannot take advantage in the increase in demand.

Due to businesses passing on these increased costs to consumers a depreciating pound will also lead to a rise in inflation above that of the set target levels. This combined with a record low interest rate of 0.25% will reduce the value of money and hinder economic growth. If inflation in the UK is higher than that of other countries, it will also decrease our competitiveness within the international market.

Positively, to date the pound appears to recover after each crash however not to its original strength. The data on the economy is still depicting economic growth, however experts warn that with increased uncertainty over Brexit it is only a matter of time before the pound falls further and fails to recover.