Hammering for the pound to continue – under Johnson OR Corbyn
Whether its Boris Johnson or Jeremy Corbyn in the driver’s seat, the pound will continue to receive a battering in the short to medium-term.
Sterling plummeted 4 per cent on Tuesday within its worst month since October 2016, as the likelihood of Britain leaving the EU without a deal on 31 October increases.
There appears to be no light at the end of the tunnel for the pound’s plight as both PM Boris Johnson and labour leader Jeremy Corbyn are promoting policies that will deliver new, serious, blows to the currency.
The Prime Minister is now stepping up no-deal preparations and a no-deal Brexit outcome looks almost certainly on the cards. That said, even though this scenario has, in the main, been priced-in by the markets, this has undoubtedly heightened uncertainty. In response, the weak pound nosedived again this week and will continue to struggle.
This can be expected to continue as the Johnson administration takes brinkmanship with the European Union up a gear as the Brexit deadline looms closer.
Should the UK depart the EU without a deal, as is broadly perceived will be the case, the pound can be expected to remain weak for a number of years until the UK and the bloc readjusts.
Moreover, many observers forecast a general election before the end of this year. This too will generate uncertainty and further turbulence for the pound.
However, should Jeremy Corbyn and Labour be victorious, this will mean further bad news for sterling.
Corbyn’s anti-business bombast and high tax/low profit stance would lead to substantial and sustained selling of the pound.
Indeed, sterling has taken a hammering when it comes to its price against other currencies over the past two years.
The drop in value of the pound has led to a reduction in people’s purchasing power and a fall in UK living standards. With imports becoming costlier with a weaker pound, the rising prices are being passed on to consumers.
Although many people say the decline in sterling is good for exports, we cannot forget that around half of Britain’s exports depend on imported components. If the pound drops in value, these will become more expensive.
Furthermore, a low pound is unwelcome news for UK holidaymakers and travellers overseas, as trips to Europe and the U.S. become more expensive. In addition, destinations such as China and Dubai are more expensive as their currencies are pegged to the U.S. dollar.
However, the crucial issue for Britain is that one of its biggest and most important sectors, financial services will take a hit from another knock to the pound. This is because it is founded on foreign investment that puts its faith in a strong pound.
Whatever the future outcome, the pound can expect another battering under either Johnson or Corbyn.
Therefore, we can expect to see a rise in domestic and international investors in UK assets taking into account the global options available to them to increase and secure their wealth.