Many have been asking about the recent drop in the Pound, due largely to the recent referendum vote. Sterling has, and will likely continue to slide in the foreseeable, with very little support until an understanding of how Brexit will pan out. The obvious concern for investors is the impact of Brexit on the economy, with recent data releases pointing towards economic slowdown, resulting in the Bank of England taking action.
Article 50 on halt until at least 2017
The news that Theresa May will not be invoking Article 50 – the official policy for withdrawing the Eu, until next year has been widely criticised by the Leave campaign. Furthermore, whilst the UK remains in this period of uncertainty Pound Sterling could remain under pressure, coupled with post-Brexit economic releases, we may see a continuing decline in rates for some time. Once Article 50 begins, the next question one must ask is whether the UK will retain access to the single market or look to adopt free trade agreements with other nations.
The countdown begins
The UK will have limited time to negotiate with EU officials once Article 50 begins, which could add further pressure to Sterling as investors gauge the potential outcomes of such talks. If the UK were to adopt lesser membership, the Norway option, Pound could make significant gains as confidence is restored. Whilst a no-agreement or hard Brexit could provide further challenges for the UK.
Defaulting to the WTO and initializing discussions with other nations could take some time to implement, the UK also has to dismantle decades of social and political ties which only adds to further complications.
Pound therefore could slide further
With the above in mind, the UK is left wide open to vulnerability until a plan is set out by the UK government and confidence within the markets are restored. I am not expecting Pound Sterling to gain significantly until next year. If you need to make a currency exchange in the near future, current rates whilst not favorable remain more attractive than some periods over the last 10 years. You may want to consider acting on a transfer sooner rather than later.
