There are few things that polarise the nation quite like Brexit – but no matter what side of the fence you sit on, there’s no denying that the UK’s exit from the EU will affect the value of the pound.
Here’s the story so far…
Is the value of the pound plummeting?
It’s an inescapable fact that the value of the pound plummeted immediately after the Brexit referendum decision was announced, and although it picked up to reach a high of over just over 1.4 USD in 2018, it’s never got back to pre-referendum levels.
It’s been all downhill since then though, as it has been in a steady state of decline and is now hovering just above 1.2 USD. The ongoing uncertainty over Brexit won’t help it increase in value, and it’s likely that leaving the EU without a deal will see it crash further (although no one can confidently predict anything at this point).
What does a low pound mean for business?
It’s easy to assume a drop in the value of the pound is bad for British businesses, but it’s no quite that black and white and there are several benefits to a devalued pound, including:
- Cheaper exports – A drop in the value of the pound can be a good thing if you’re in the export market as it can make your prices more competitive. It has the reverse effect on imports though, which can have a knock-on effect for exporters, such as car manufacturers, who have to import component parts. In theory, the current account deficit should improve as the value of exports rises relative to the value of imports.
- Increases demand for domestic products. Because a dropping pound pushes up the price of imported goods, consumers are more likely to buy locally-produced and manufactured goods.
- Help an ailing economy – Believe it or not, a depreciated pound can actually help with economic recovery. In 1992, when the UK left the ERM, the pound depreciated and this helped the economy to recover.
How do you think the value of the pound will affect your business? Let us know in the comments below.