Nobody saw the British exit coming. Yet Prime Minister Theresa May is making it happen (right?). Meanwhile, the British pound has dropped to its lowest point against the dollar in decades. And if you’re trying to figure out what’s happening on forex, good luck.
Most analysts are taking a vacation from the GBP trading pairs, and they’re not even wearing shorts. Instead, they’re calling the pound “untradable” and comparing it to the worst currencies in the world. Trade Finance Global writer Gary Howes described the situation best in November 2018 when he said:
“There is not a professional forex trader or economic analyst that isn’t fearing what the indecisive Brexit talks could result in. In fact, it has gotten so bad that the pound sterling now has more in common with some of the world’s weakest and most volatile currencies than the world-leading currencies it used to be associated with.”
But even if we can’t predict the future of the pound (or England), we can speculate about the following possible results of Brexit.
The Pound Could Lose More Value
Brexit will make it more difficult for European money to enter England. That will increase the UK’s trade deficit, which is already ballooning as English companies stockpile European goods ahead of “B-Day.” The first quarter of 2019 saw the UK’s deficit increase to 10.35 billion pounds from 9.5 billion pounds in the fourth quarter of 2018. This trade imbalance could cause the pound to weaken.
Tariffs on British Imports/Exports
Brexit means the U.K. will leave the European Customs Union, so English manufacturers and consumers will experience new tariffs and shipping delays. Imports and exports traveling to and from the UK and Europe will be more expensive. It’s possible that the U.K. will institute a 0.0 percent tariff policy on European goods. However, as of March 2019, the EU had tariffs of up to 10 percent on cars, 12 percent on certain clothing and 12.8 percent plus 265 euros per 100 kilos on beef. English and European manufacturers and consumers will bear the brunt of these costs — which will have an impact on both stock and foreign currency markets.
The UK and London Real Estate Prices Will Keep Getting Hit
The Brexit vote caused U.K. property values to decline sharply. As of March 2018, the U.K. real estate market wasn’t showing any signs of improvement. In April 2019, Bloomberg wrote that “a subsequent recovery is expected to elude London and the southeast, where the market is in its worst slump since the financial crisis.” Uncertainty around Brexit isn’t helping the U.K. housing market. Will it get better or worse after Brexit? Nobody knows for sure, but some think it could get worse.
Could the UK Stop Brexit?
Stopping Brexit is a possibility, but that requires a fundamental change to U.K. law, and it doesn’t seem like British lawmakers want to do that. As of April 2019, the EU had given the UK a deadline of Oct. 31, 2019, to finalize their exit deal. Until then, the U.K. doesn’t have to worry about tariffs, but the fate of all GBP trading pairs on forex and U.K. real estate markets will remain in serious question.
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