From the Start of the Year to June 2016

  • On 20th February, David Cameron announces EU referendum which drove down the pound but his subsequent campaigning efforts within the Bremain campaign helped the currency remain stable.
  • On March 16th – chancellor of the exchequer Mr Osborne warned that as part of the UK budget he would have to fill in a £30bn “black hole” in the public finances in the event of a Brexit vote. He warned that this could involve raising taxes or cutting spending to the NHS.
  • On April 7th – productivity in Britain was said to have deteriorated by the most since the 2008 financial crisis
  • April – Treasury published details of its long-term economic assessment of EU membership on Britain’s economy and prosperity.  Treasury expected Brexit to cost households 6 per cent by 2030, an annual loss of about £4,300 a year at today’s prices relative to the income level households would have had if Britain remained in the EU.

    Towards the end of April
  • Growth is said to be slowing in the uk
  • BOE publishes a report that as a result of Brexit, inflation would rise, growth could stoop to 0.5% and the BOE rate would be dropped to zero, thereby inciting a sell-off of the pound. Mark Carney warns that recession could be bad for inflation and for the UK economy.
  • In June, GBP posted its biggest gain in eight years after a series of polls showed that Britons are increasingly likely to vote to Remain in the EU

 

July 2016

Since the start of the year, the pound has dropped 12% against the dollar and 14% since UK decided to leave the EU on June 23rd. It is trading at its lowest level since 1985.

From Mid-Dec last year to the UK referendum vote, the sterling has fluctuated between $1.40 and $1.50 to the Pound. The pound then drastically dropped since the EU referendum and since then the currency has in July remianed in between $1.29 and $1.32, reaching a new low on July 6 of $1.27.

Further depreciation is expected if BOE cuts rates for the first time in more than 7 years in August. 

The market is bearish on the GBP because it believes the UK could slump into a recession due to the huge political and economic uncertainty of the UK economy since the vote. Surveys are saying that consumer confidence has collapsed and the first survey data carried in the aftermath of Britain’s vote to leave the EU last month has suggested the economy suffered a “dramatic deterioration” in the wake of the referendum. If current trends continue, Markit, which produces the closely-watched survey, believes the UK economy could shrink by 0.4 per cent in the third quarter.

These developments in the Sterling are good news for foreign tourists and UK exporters but bad news for importers and UK investment/purchases overseas.


August 2016

The Bank of England for the first time in 7 years has reduced the base rate by 25bp to 0.25%.

There was heavy selling seen in the immediate aftermath of the Bank of England’s decision to cut rates and extend stimulus measures to cushion the economy from the fallout of the UK’s vote to leave the EU. The pound dropped 1.6% against the dollar, among all other major currencies. As a result of quantitative easing and the government’s 70m buyback of bonds, bond prices rose and yields dropped on UK gilts. 

The drop in rates was designed to stimulate the UK economy and inflation which is currently at 0.5%, well below the target rate of 2%. 

Source: Financial Times

 

September/October 2016

 

  • The pound has fallen dramatically since the Brexit vote at the end of June.
  • It declined to a three-year low against the euro following Theresa May’s announcement that Article 50 of the Lisbon Treaty, which starts two years of formal negotiations, will be triggered before the end of March 2017. In practice this means the UK will be out of the EU by the summer of 2019.
  • The currency’s continuing weakness has been accentuated by the cut in interest rates and the Bank of England’s economic stimulus measures.

Since the referendum, it has fallen about 18% against the dollar since the referendum, to levels not seen since 1985.
On 20 October the pound was worth $1.22.
Against the euro, on 20 October it was worth about €1.12. Sterling dropped to its weakest of $1.20 after it was announced that the UK government is prepared for a hard brexit which puts control over immigration and UK sovereignty ahead of access to the free European single market, sparking a sell off further in the sterling,

There was also rallying in the dollar which caused the dollar to strengthen (and pound to weaken) over expectations that the Fed will continue to raise rates in December.

End of Oct – Bank of England governor Mark Carney makes decision to stay on until June 2019. The pound did not move and remained at $1.22. 

 

November/Mid December 2016

Article 50 cannot be triggered without a parliamentary vote
The UK government’s plans for Brexit have been dealt a blow by a landmark High Court ruling that the Article 50 divorce process for leaving the EU requires a vote by parliament.The ruling means the government cannot use its prerogative powers to trigger Article 50 without a parliamentary vote. This raising uncertainties over the length of the EU divorce process and whether MPs will push for amendments to any Brexit bill or even block it.
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This also gives way for a vote for a softer Brexit that takes into account the UK’s EU membership. Sterling jumped to $1.2448 after the ruling and the FTSE dropped. But the pound gave up some of its gains after the government said it would appeal against the ruling.

BOE revises and raises its inflation forecasts for the next 2 years
The pound’s fall will raise import prices sharply and the bank’s Monetary Policy Committee said it forecasts inflation to exceed its 2 per cent target by next spring, peak at 2.8 per cent in early 2018 and stay above 2.5 per cent well into 2019 before returning to target only in 2020.

With inflation on the rise, the committee has said rates could move in either direction, depending on the performance of the economy – but even more so now towards a rate rise.
Supporting a rate rise:
1. better than expected economic data since Augus
2. the further 6 per cent drop in the value of sterling
3. heightened expectation that the country is heading for a hard version of Brexit.

The UK economy expanded by 0.5 per cent between July and September, the Office for National Statistics has confirmed.
The first official growth figures since the Brexit vote confounded warnings of an immediate recession if Britain voted to leave the EU, but economists have predicted that the honeymoon is unlikely to last.

Uk released its autumn statement which involved;
Ban on letting agent fees which impacted shares of estate agents like foxtons
Tax breaks to broadband infrastructure – helping shares of BT and other internet service providers
– Housing Infrastructure Fund to deliver infrastructure for up to 100,000 new homes in high demand areas
– Corporation tax will be reduced to 17 per cent as planned.
– For the oil and gas sector, the Carbon Price Support will be capped until 2020 and business rates reductions worth £6.7billion will be implemented.

Markets reacted well to Theresa May getting the backing of MPs for her timetable to start Brexit talks in March 2017 — but only after agreeing to publish a plan setting out her objectives and promising MPs a vote on the final “divorce deal”.
Pound has been doing slightly better than November now at around $1.26 but still shaky as there is uncertainty around Brexit.

 

January 2017

Pound Sterling has fallen notably through the course of January as markets start to focus on upcoming Brexit negotiations and price in the negatives associated with the United Kingdom’s withdrawal from the European Union’s single market.

The pound was the biggest faller sliding to its lowest level against the dollar since late October, after Theresa May warned there was no prospect of Britain keeping “bits” of EU membership.