Currency analyst

Sterling’s depreciation: who will lose?

The currency depreciation after Theresa May kicked off Brexit has left pound hovering around its 30-year low. Many traders rub their hands and cash in on the pound’s tremendous slump. Millions of travelers have flooded the country aspiring to shop for luxury goods or visit historical sights. It seems that everybody is happy with this turn of event. But there should be at least one individual worse off to keep the universe in harmony. And we must admit that there are plenty of them.

Let’s take a look at some consequences of the pound’s depreciation and at those who loose.

1. Expensive imports

A falling pound means that imports will become more expensive; prices will rise, the wholesale costs to UK retailers will be much higher. British consumers will have to face with high prices on the clothing and electricals.

2. Investment outflows +Inflation

Foreign investors own large amount of UK stocks and gilts which accounts for more than $2 trillion. Now investors are becoming more cautious about putting money into country's assets. If there is a great risk of inflation, they can demand higher premiums for their inputs. As a result, we expect that there will be great outflows from the country in the upcoming months.

3. Britain’ s financial industry losses  

Britain's financial industry could lose up to 38 billion pounds in revenue, if there is a 'hard Brexit'.

4. Exporters may lose and win at the same time

It seems that exporters are those who are actually better off from the pound’s depreciation. Their products become cheaper for foreign customers to buy. Their product becomes more competitive in domestic and international markets. But it’s not everything in the garden is rosy. Many UK companies addressed to the government with demand to ensure the country’s economic stability. Now they are trading with EU on a tariff and quota free basis. After Brexit, if the UK is not allowed to remain access to the single market, UK exporters may suffer significantly. They will have to face customs and rules-of-origin controls, as well as many non-tariff barriers, especially in services.

5. GDP reduction

The United Kingdom could lose up to 66 billion pounds a year from the pound depreciation, according to the Times report revealing leaked government papers. A quarterly survey of 7,000 businesses by the British Chambers of Commerce (BCC) on Monday showed that business investment and turnover confidence in the UK had reduced to four-year lows. Another survey by Deloitte stated that chief financial officers in major British firms reported only a partial rebound in business morale after the referendum. If business sentiments toward pound are not restored, we may expect the reduction in the UK aggregate output.  

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