March 28, 2024

Brexit Once Meant a Weaker British Pound, but Not Anymore

The pound has gained roughly 2 percent against the dollar since Parliament voted on Oct. 29 to hold a new election.

A stronger pound can be a bad thing for British companies, making it harder for them to sell their goods in the eurozone and beyond and diluting the profits they bring back from overseas. Nonetheless, British markets have also risen since the campaign began, reflecting the prospect of a Conservative victory that would not only reduce the chances of a no-deal Brexit but also avoid the nationalization ambitions of the opposition Labour Party.

The FTSE 250 is up more than 3 percent over that period, pushing the benchmark index of British stocks to a nearly 19 percent gain for the year.

Yields on government bonds have also risen slightly, suggesting that investors are starting to move away from safer investments. Bond yields rise when bond prices fall, and vice versa.

“The market has become less worked up about the chance of a Labour government, and also some hope that a good-sized Conservative majority could kind of lift some Brexit uncertainty,” Andrew Wishart, U.K. economist for Capital Economics, a consulting firm, said before the voting.

Such signals have been a welcome development for the British economy, which has slowed since the 2016 referendum. Amid weak business investment and consumer confidence, economic growth fell to a 1 percent annual rate in the third quarter, the slowest pace in about a decade.

While the pound rallied in recent weeks, it is roughly 10 percent lower than it was immediately before the 2016 referendum. Markets were unprepared for the result, and in the hours after the vote the pound plummeted by about 10 percent. That is the equivalent of an earthquake in the normally subdued foreign-exchange markets. Daily moves of 1 percent are considered quite large for the currencies of rich nations like Britain.

Article source: https://www.nytimes.com/2019/12/12/business/economy/uk-election-pound-markets.html?emc=rss&partner=rss

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