Currency analyst

UK economy after Brexit vote and GBP/USD forecasts

Elections, upheavals among citizens, strikes, coup d’Etat can wreak havoc on a currency. And the Brexit referendum is an indisputable confirmation of this tendency. Nobody expected that UK people will vote to leave the EU, and there it was – a clap of thunder – they did it. The pound plummeted from its highs responding to this unexpected turn of events. In most situations, however, the dust settles and currencies return to their pre-crisis rates and adjust to the country's economic growth prospects. Let’s look at the UK economy and try to define the GBP follows this pattern.

So far, since the “Black Thursday” of June 23, there is no sign of ruin in the UK real economy. Moreover, the OECD (Organization for Economic Cooperation and Development) believes that it will grow at 1,8 % this year. Right after the referendum many economists drew a rather gloomy picture of the UK future. They tried to convince us that the “Brexit” would lead to a sell-off of assets, that purchasing power of British people would be distorted; that business confidence would disappear. Investment banks, including Barclays and Credit Suisse, even predicted the economy would shrink significantly in 2017. Yet that has not really come true – business confidence is gradually recovering, although investments did fall since the thrice-cursed referendum; and consumers spend as enthusiastically as they used to.

Now, let’s look at the technical picture and define what is happening with pound after these rattling events. As we see there is a strong downward trend on the daily chart since June, but there is a glimpse of hope for the GBP resurrection. Due to the economic recovery, it managed to slow down its fall and found several supports at 1, 279, 1,286 and 1,294 levels.

Consumer probably suffered the most from this drastic downfall, as prices on import goods have risen with the pound’s depreciation. The other side of the coin is positive, though. The fall of the national currency has become a tangible kick for manufacturing exporters who suddenly became richer and more motivated to expand their production in the future.


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