Britain faces a great challenge in the growth of its economy as the authorities weigh in the necessary steps to the finality of Brexit. Since the conclusion of the UK referendum, the market volatility has caused an appalling effect on the financial sector. The indecisiveness from the European leaders and the conflict among the political division has created a rough road to the narrow path of the economy.
Brexit Hits the Sterling
A few days ago, the British pound hit 31-year low, a matter that awakened the financial market from being skeptical. The decline came after the announcement of Prime Minister May that Article 50 would be imposed in the first quarter of 2017.
The Sterling hit its peak at 1.48792 against the greenback in the mid of June, days before the decision on Brexit. As the discussion relived, the currency plunged to 1.26655 against the U.S dollar on Wednesday. The trend kept on as GBP/USD dropped to 1.26413 at 15:23 UTC. The weakening of the currency could drive the prices of the domestic product higher which will be one of the problems of the UK companies in the long term.
Due to Brexit some of the firms in the Great Britain found it hard to attract overseas customers, regardless of the price of the traded products. The behavior of the market inside and outside the UK has been controlled and well planned.
On the other hand, Julian Jessop of Capital Economics, found the depreciation of the currency as a cure and symptom of Brexit concerns. In his latest statement, Mr. Jessop explained that the sharp decline of the currency was only as reversal from the appreciation from 2013 to 2015, spurring development for the UK exporters.
Further, Mr. Jessop said, “there is little risk that this will prompt a hike in interest rates, as might have been the case during a true ‘sterling crisis.’ Instead, the fall in the pound is still largely a consequence of the prospect that the Bank of England will keep monetary policy looser for longer to cushion the economy.”
British Economy on Post-Brexit
In light of the impact left by Brexit, the International Monetary Fund cut is growth forecast in Britain for next year. The organization highlighted the emerging risks if the UK couldn’t iron out the trade links after the conclusion of the referendum.
Meanwhile, BMI Research, a notable macroeconomic analysis provider also mentioned about the risk brought by Brexit in the economy. “A hard Brexit would undoubtedly cause significant concern in the short-to-medium term, and would risk a recession in the U.K. economy, but would leave the country in a more advantageous position in the long term to try and facilitate trade with expanding emerging markets elsewhere around the globe,” the report indicated.
Speaking at the Conservative Party’s annual conference, Prime Minister May extended her desire to give British companies the maximum freedom to trade with and operate within the single market and let European businesses do the same in the United Kingdom.
“We are not leaving the European Union only to give up control of immigration all over again and we’re not leaving only to return to the jurisdiction of the European Court of Justice,” May said after invoking the start of Article 50 by the end of March. The two-year negotiation phase for the total escape of Britain in the European Union was highly criticized due to the disparities between the parties involved.
As the negotiation comes closer, the British economy suffers. The trade barriers of Britain among the members if the union could be at stake with issues on migration on the side. After the depreciation of the sterling, it wouldn’t be surprising that a recession may appear soon. The central bank hasn’t made a notable adjustment apparently because the market is still unstable and the inflation rate has not met as well. Considering the forecasted slump from different sectors, where will the economy go from here?
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