Sterling’s Slide Is Good For the UK

14.10.2016 • Politics and War

From Merryn Somerset Webb – Moneyweek Magazine (Great Britain) –

The pound hit a historic milestone this week: measured against a basket of the currencies of its main trading partners, it fell to an all-time low (see the chart on page 26). The reason for the plunge was clear. There was talk of a “flash crash” amid illiquid markets, and a strengthening US dollar didn’t help. But ultimately, the pound has crashed because markets are suddenly worried that Brexit really does mean Brexit. At the Conservative party conference, Prime Minister Theresa May not only announced plans to trigger Article 50 by the end of March next year, but also made plenty of noises about tougher immigration policies and taking a firmer hand with big business. As investment bank UniCredit put it: “It is not just about the UK’s free access to the single market and trade becoming costlier; investors are now perplexed by the country’s vision on immigration, openness and business-friendliness”. In short, markets fear that a “hard” Brexit is now much more likely than the “soft” Brexit, or even the non-Brexit some had hoped for.

May’s rhetoric is just a starting point for negotiation, of course. May is talking tough now, as are her European counterparts, but the two sides are likely to edge closer as Britain and the European Union (EU) figure out their post-Brexit relationship. Indeed, the pound rebounded a little mid-week after May suggested that parliament would have some say on whatever Brexit deal materialises. But does the crashing pound really prove that Brexit is a dire mistake? Or is it just a necessary step on the path to rebalancing the UK economy – painful for some, but equally beneficial for others? More importantly, what does it mean for your money either way?

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