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You are here: Home / British Sterling / Is the cheaper Pound benefiting the economy?

Is the cheaper Pound benefiting the economy?

September 9, 2016 by Rob Lloyd

Is the cheaper Pound benefiting the economy?
  • UK’s trade balance in better footing
  • Housing market healthy
  • Consumer inflation expectations positive

Is a weaker Pound good for the UK post-Brexit?

money_2196794bWhilst it is true that a cheaper Pound Sterling has helped boost foreign investment, a weaker Pound is far from ideal for the UK economy. As a net importer, the UK benefits from a strong Sterling to cushion costs from Europe and the US. Even business who export need to acquire most of their raw materials overseas.

And who will bare the brunt of these extra costs? The consumer. Which will likely equate to higher consumer prices. But how will this sit amongst the post-Brexit uncertainty? If business are not employing and wage growth is softened, consumers won’t want to spend.

And yes, the latest consumer inflation expectations are higher that expected, but an artificial boost in product prices as a result of a cheaper Pound is not going to help the economy longer term. Stronger exports, foreign investment and thus higher house prices could help the UK short term. But the UK needs to establish itself quickly and tactfully as it enters its divorce with the EU, expect a bumpy ride for Sterling ahead.

Further Sterling losses likely as we approach 2017

There remains some hope for Sterling in the short term, the US presidential elections will likely take some of the spotlight away. But once the US election hype is over, investors know that Article 50 will be looming in the distance.

I am expecting Sterling to fall below its post-Brexit levels once Article 50 is invoked, and with no formal Brexit plan or announcement of Article 50 expected, there is no certainty within the uncertainty. Those looking to buy foreign currency should consider this. The official announcement of the UK’s withdrawal from the EU could severely impact your currency requirements.

Filed Under: British Sterling Tagged With: Inflation, Pound Sterling weakness

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About Rob Lloyd

Robert brings with him a wealth of knowledge on what is impacting exchange rates, especially around the subject of the EU Referendum and the implications for Sterling and Euro exchange rates.

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