Pound Sterling Crashes Amidst Renewed Brexit Worries

The sterling dropped to a 31-year low against the dollar as uncertainties over Brexit rose again. During trading earlier in the week, the pound went to as low as $1.2715 after news broke that that the British administration might pursue a hard Brexit that is likely to result in UK losing its key single market access.

The decline in currency was triggered after Prime Minister May announced that Article 50 would be triggered by March 2017. The Article 50 starts the separation process of the UK from the European Union which is expected to take around two years. The currency also sunk to a new low against the euro in the last three years, hitting the 88pence mark. Economists in the country are warning of more turbulence in UK markets.

In a statement, Professor Graeme Roy, director of the Fraser of Allander Institute, said

The one thing we have to remember is what is driving the fall in the exchange rate. This isn’t because we have suddenly become more competitive. It is because markets and investors see the UK as being a less attractive place with Brexit coming down the line. That is what is driving down the exchange rate, and uncertainty over what the trade deals will mean.

Al Jazeera English

Jeremy Peat, visiting professor at Strathclyde University’s International Public Policy Institute said that it was a difficult time for the UK since the uncertainties aren’t yet sorted while the risks of a slowdown are mounting. UK Chancellor Philip Hammond has indicated that the negotiation period is likely to be a turbulent time, likening it to a roller-coaster ride.

A spokesperson for the Scottish Government said that the fall in sterling was further evidence that the UK plans to pursue a hard Brexit policy which is likely to threaten investment, jobs and economic prosperity.

Peat said that there are signs from the ruling Tory party conference that that they are not likely to compromise, which has caused the pound to fall steadily. He said that unwillingness to compromise will significantly harm UK’s chances to retain access to the trade barrier-free EU market. The areas of contention are: immigration flow, labour regulations and financial contributes to Europe to name a few.

Peat warned that with this stance it is unlikely that there will be a positive outcome for UK companies particularly in the financial sector which is likely to face the brunt. The International Monetary Fund has signalled the turbulent time ahead for the UK by slashing its growth forecast for the country, bringing it down to 1.1 percent for the next year.

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