Brexit: Exchanging Currency

September 12, 2018

Brexit could have a substantial impact on currency rates and in turn affect businesses and consumers.

 

It seems fairly certain that Brexit will inevitably have many effects on the financial sector. Markets have already fluctuated each time the subject has arisen.

 

 

One may have already noticed the change in the market rate as the Pound Sterling has weakened against the Euro since the Brexit referendum on 23rd June 2016.

 

On that date, the market rate (according to XE Corp) was 1.30531 EUR/GBP. After six days, on the 29th June, the Pound had fallen drastically to 1.20559 EUR/GBP. To put this in context, if someone had sought to exchange £100 on the 23rd June 2016, they would have received €130.53. On 29th June 2016, £100 would have received €120.56 when exchanged. However, it is unlikely that consumers would have received the benefit of this rate, as banks and businesses change the exchange rate in order to make themselves money whilst providing the service of supplying foreign currency. Losing €10 per £100 may not sound significant, however this is not the case for large corporations and businesses. This is because these organisations often transfer substantial amounts, or revalue their assets for corporation tax purposes, so in 6 days their assets could be worth considerably less, and consequently the €10 loss will be multiplied by this factor.

 

Since the referendum there have been small fluctuations as the markets have reacted to the optimistic news of deals with the EU, followed by the troubling news that the UK will not get the ‘bespoke deal’ Theresa May’s government has promised to deliver. Markets usually react to such global developments as this. With businesses in the UK currently living in uncertainty, it is not a surprise that some big companies will be moving onto the continent. Recently Panasonic stated that it would be moving its European headquarters outside of the UK. This news makes Panasonic the most recent name on a long list of companies (including several banks such as Deutsche bank) questioning whether to move their headquarters to continental Europe.

 

Individuals will feel the effects of Brexit in a variety of ways. It is likely that there will be a significant impact on the job market, specifically that there will be fewer jobs as more employers move their operations abroad (such as Deutsche bank and Panasonic). In addition, the increase in cost of importing and exporting goods and services (as a consequence of renegotiated tariffs) will result in a more expensive end product for the consumer. Travel will face challenges and become more expensive post-Brexit: the typical summer holiday in Spain for the average Briton will cost more regardless, as prices on the continent increase due to the British Pound being worth less than the Euro. The most recent rate, according to XE Corp, for 1st September 2018 was approximately 1.11655 EUR/GBP. For the consumer it would be closer to 1.0941 EUR/GBP or a return of just €109.41 for £100.

 

It was arguably a positive decision for the UK not to adopt the Euro as its currency. If the UK had implemented the Euro and Brexit still occurred, the UK would have been hard-pressed to create a currency from the ashes of what would have been the defunct British Pound. This is especially problematic as currency relies so heavily on the spending, borrowing, and production of the country in question. British production is tied to the continent; the UK’s closest neighbours have recently been its most valuable trade partners. The challenges of creating new trade partners is one that will be discussed in the inner chambers of parliament, although some countries, including the US, have been very vocal in their rhetoric about offering the hand of trade with a post-Brexit UK, though with very little movement on a public level.

 

Brexit would also have a noticeable impact on the EU. France and Germany are considered the ‘heavyweights’ of the EU and both have extensive dealings in trade with the UK. To lose this trade is almost inconceivable; Audis and BMWs will continue to reach the UK post-Brexit, although this may be at a significantly higher price. How these businesses will trade within the UK remains to be seen. Conversely, British products on the continent may sell for far reduced amounts, although this may result in the UK producing more products for internal use rather than for export.

 

The potential implications set out above could see businesses leaving the UK and others emerging in their stead with a greater emphasis on domestic production. For the average UK citizen, the uncertainty of the political climate surrounding Brexit can cause concern regarding job security. It is likely that many businesses will experience a great change as a consequence of Brexit and this will have an impact on their workforce(s). As a result of such uncertainty, consumers may spend less or impulse-spend. Consequently, the economy would be less stable and production would need to be altered to keep pace with the fluctuating demand.

 

Share on Facebook
Share on Twitter
Please reload

Who's Behind The Blog?
Search By Tags
Please reload

Follow Newell Legal
  • Facebook Basic Black
  • Twitter Basic Black

Related Posts

Please reload