Ten months have passed since the UK took the against-all-odds decision of removing itself from the EU. Ten months since the most politically and economically impacting event of 2016. In the weeks preceding the Brexit vote, brokerages and traders took measures to limit their exposure; some savvy investors took the opportunity to trade against the plummeting pound, and some more conservative traders refrained from trading altogether. The uncertainty of not only the results of the vote but what it would mean to the UK and the rest of the world, particularly the EU, if the people were to vote in favor of Brexit, caused the markets to behave erratically and unpredictably for weeks preceding the referendum, and the pound to experience its lowest seen price in three decades.
Ten months have passed. What now?
Theresa May, England’s Prime Minister, has promised to carry out Article 50, to effectively formally commence the process of removing the UK from the European Union. This quick removal means the UK is unlikely to have time to set up trade agreements with the EU and the US, which in turn means that all the valuable trade preferences it enjoyed until now as part of the EU, will be lost. This uncertainty has become an issue for investors and investment firms and although the UK has not yet left the EU, and the real changes will only begin to be seen once that happens, the British pound took home the “worst performing currency of 2016 award”. Since then it has recovered 5% since its lowest level, but it is still trading around 15% lower compared to the US dollar and 12% lower compared to the euro.
There have been rumors that the uncertainty following Brexit is damaging business confidence and the ONS has reported a slowdown in business investment. A significant slowdown has been seen across several industries and growth in 2017 is expected to slow down again to 1.6%. Currency strategists say that volatility for the English pound will likely remain until more certainty is observed once the execution of article 50 is implemented.
Not all is doom in the kingdom of Her Royal Highness, however. A lower pound means good news to exporters. The International Monetary Fund is estimating a GDP growth in 2017 to 1.8%, the highest of all G7 nations. During the last quarter of 2016, UK’s GDP increased, the manufacturing industry hiked and investor confidence seems to be holding up.
There may be a lot of concern and uncertainty surrounding the UK’s economy, but truth be told, once the dust settles, this may very well turn out to be one of the best trading markets of the year.
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