Chinese 100, 50, 20, 10 and 5 yuan bills and Russian 1,000 and 100 ruble bills - Sputnik International
Get breaking stories and analysis on the global economy from Sputnik.

What to Expect When Brexiting: Prognosis for British Currency, Economy Response

CC0 / / Brexit
Brexit - Sputnik International
Financial landscape in Britain seems much clearer and the currency is rallying, according to a leading fund manager in London's asset management firm.

Pound sterling on Monday traded up 0.2 percent at $1.3086, closing in on a six-week high of $1.3145. It was flat against the euro at 89.02 pence.

EU's chief negotiator has been reported to say on September 17 that "some parts of the draft withdrawal agreement have already been agreed in principle by the UK and the EU negotiators."  

While the negative impact of Brexit no deal fears led to sterling losses against the dollar in August 2018, recent reported progress in negotiations boosted the British currency.

READ MORE: Sharp Fall for British Pound While May Prefers No Deal Over Bad Brexit Deal

"The landscape seems much clearer as we have seen descent progress in the Brexit negotiations with both parties expressing optimism as they have stated that they are not far from reaching a deal. The market has been a recipient of the good news as we have seen the currency rallying and the interest rates going higher which is currently a good thing as Bank of England is in the process of tightening the monetary policy," a London top financial analyst, who wished to remain anonymous, told Sputnik.

According to the fund manager working in London's City district, "in case a soft Brexit deal is reached between Brussels and London, we should expect":

  • Currency to recover almost back to June 2016 levels
  • Stock market to drop as most of the stocks are multinational firms receiving revenues from various currencies and strong currency will hurt them
  • Economy growth to recover in the medium term
  • Interest rates to rise slightly faster

In case of a hard Brexit scenario:

  • Currency to sell off a bit further although it is trading at low levels already
  • Stock market to rally in the short term amid the weakness of the currency
  • Economic slowdown to take place in the medium term
  • Most likely another election

Among the reasons for economic slowdown, the analyst identified strong currency leading to higher inflation and rates remaining lower, while the economy remains too fragile to raise them and fight inflation. At the same time, the unemployment climb would moderately surge, reacting to businesses leaving Britain.

Mr. Barnier on Monday stressed that Britain and the EU bloc can reach a deal if they preserve the integrity of the EU's single market.

Monday also saw the International Monetary Fund warn of a negative economic impact if Britain walks away from the negotiation table without a deal.

READ MORE: All Scenarios Will Cost the UK Economy — IMF Chief on Impact of Brexit Deal

The views and opinions expressed in this article are solely those of the author and do not necessarily reflect those of Sputnik.

To participate in the discussion
log in or register
Заголовок открываемого материала