A few years back – when Kathy Lien and I were just starting our forex business and I was no longer on a fat expense account – I had to go to London for a few days of work.
Talk about sticker shock. A basic cup of coffee was five bucks, and I wound up eating most of my meals in the form of egg salad sandwiches at a ready-to-eat shop called Pret a Manger.
These days I suspect I would be able to afford much more luxurious meals, not only because my business is no longer a startup, but also because the value of the pound has plummeted by more than 40% since that time.
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| The value of the British pound has nosedived as investors grasp the long-range impact of Brexit. |
For the past few weeks, I have been warning you that investors have been lulled into a false complacency in the wake of the Brexit aftermath. On the surface, everything in the U.K. economy appears to be hunky-dory.
The PMI data has seen some of the largest gains in decades, wages are up and growth is some of the best among the G-7. But all of this positive economic news is really the result of fortuitous circumstances that won’t last.
How long before Britain’s out of the EU? Well, Prime Minister Theresa May has declared that the U.K. will formally start the exit process in March 2017 by filing what’s called Article 50 of the Lisbon Treaty. After that, the country would have two years to disentangle itself from the 28-country bloc.
Right now, the U.K. has the best of both worlds. It enjoys full access to the EU as well as a significantly depreciated currency, whichallows it to compete in European markets. But the markets are not dumb. They are beginning to see that U.K. politicians are favoring immigration reform at the expense of trade policy and that Europeans are in no mood to offer any concessions under such conditions.
The term “hard Brexit” has now become part of the market lexicon, and that essentially means that the U.K. may leave the EU without any favorable trade status whatsoever.
To make matters worse, the head of the World Trade Organization recently stated that if the U.K. reneges on its deal with the EU, then the U.K. would be forced to renegotiate its position with the WTO as well. Such a move would be the final death blow to the U.K. economy. Most experts estimate that “hard Brexit” could cost as much as 66 billion GBP in trade and shave a Depression-like 9.5% off the U.K. GDP next year.
Little wonder then that the pound crashed last Thursday, dropping 700 points in less than 30 seconds. Most analysts tried to blame the crash on “fat-finger” mistakes by some traders. But if that was the case, the cable would have recovered most of its losses by now. Yet it remains well below the pre-crash levels targeting the 1.2000 figure amid relentless selling in the currency market.
Indeed, the “hard Brexit” scenario could trigger something that almost no one thought would be possible – eventual parity between the pound and the dollar. Were this to occur, it would be a complete historical round turn for Great Britain as it loses all vestiges of its status as a global empire and once again becomes a small, isolated island nation.
{ 62 comments }
What happened to the exchange, oil, t-bill, and gold prices recap?
Why don’t you publish the end of the day market closing information in a box like you used to like the DOW closings and gold etc?
The UK only enjoyed a boom since the late 1990s because of the ready access to a growing pool of hard-working, well-educated labor from the EU and easy access to the world’s capital markets. Take that away, and the UK will have to fall back on its domestic population to keep its businesses going. And that’s not a notoriously hardworking or well-educated lot. Welfare dependency in the UK is very high and its construction industry and infrastructure notoriously antiquated. This fusty, decaying island will struggle to make and sell products and services without the ready pool of flexible labor that it got used to. All those cranky pensioners surely will not do it for them, nor will the ill-educated hordes with their tattoos and drug and drink habits.
Ill educated! Look at the top ten universities in the world, four are in Europe. Oh look! They are all in the UK. The UK turns out more graduates than we need. We export our highly skilled personal all over Europe and the world.
Welfare dependency is high in the UK as there are too many foreigners with 12 children claiming it, who have never paid a red cent into the scheme. We are drowning in a flood of unskilled Eastern and Central European labor and far too many shifty, lazy benefit scroungers and freeloader, and medical tourists also.
If UK has enjoyed a boom since the late 1990’s it’s little to do with hordes of super-smart Europeans transferring to the UK. It is more to do with financial markets; insurance; North Sea oil and gas. Anyway, why would, for instance, any German give up his employment in Germany to work in this decaying island unless s/he thought it was not superior, the chance to progress was enhanced, the remuneration better and so on.
Not really sure where you are from but if you are an American you have the same problem of ‘ill-educated hordes with their tattoos, DRUGS and drink habits’. there but much, much worse.
England will become a small, isolated island nation in the same sense that Japan is.We are all going to suffer immense economic problems but as long as England is able to manufacture and sell useful products their technical advantages will allow them to maintain major economic status just as Japan has.
England is not an island. It has Scotland and Wales on its borders. If you mean the UK then it isn’t an island either since it has Northern Ireland across the zIrish sea.
They have not been an Empire for many Years!!!!!!!!!!!!
Excellent Report! Once you lose a powerful Empire, everything else will fall apart, yes in the end it will be an island like it was.
The American Financial Empire is ending too. Soon the Americans will have to export to import; not just print “money”. Wow! American lives will change dramatically, when they have to pay the true price of goods and commodities.
So what? Freedom is far more important that the value of a currency or “trade”. It’s far worse being in the dictatorial, corrupt, and dying European “Union”.
Well stated Joe.
I completely agree with Joe & Ray.
Great Brittain has already lost all its vestiges as a global empire after WWII.
This is the price of retaining ones sovereignty in the New World Order.
Yet, if Italy votes to follow, Britain might have an advantage, for that would almost certainly mark the end of the E.U. experiment. Other nations would probably follow. Britain would have a head start in adapting to the new reality. Putin must be rubbing his hands in glee, because probable President Hilary would be largely without allies in her desire for war with Russia, as NATO unravels also.
How is this possible? Does the EU speak for the WTO?
“Brexit honeymoon” “Death blow to the UK” “most experts estimate that “hard Brexit†could cost as much as 66 billion GBP in trade and shave a Depression-like 9.5% off the U.K. GDP next year” (ie 2017), “once again becomes a small, isolated island nation”
What planet are you on Boris? I mean what Planet! I’m a Brit and there has never been a Brexit honeymoon, the EU bureaucrats hate the UK so much for spoiling their party they are going to try and make us pay for that. They are deliberately making it ‘hard’. Luckily with the Pound falling so much our goods are more competitive than ever and if they impose the blocs tariffs on the UK our products are still cheaper than before the referendum vote! Death blow I think not. The Pound has been in a bear market since July 2014 so Brexit has just gotten us to the new level a little more quickly. Besides Britain is not scheduled to leave the block until April 2019 at the earliest – are you serious that 9.5 is wiped off the UK economy next year, two years before we have left? I think these so-called experts (all ‘most’ of them) will be proven wrong. The UK stock market is at an all time high, on the back of a reduced value pound, do you think it would be that high if next year we get 66 billion GPB go up in smoke? I think not. Why is the WTO so fibbertigibbety about all this. Probably cosying up to their IMF and EU chums to make it appear difficult for the UK to Brexit (hint: you can still change your mind if you like) but the UK has half the world queuing up to sign trade deals with us. ‘Small isolated island nation’? Oh yeah, like Japan is! It is the central EU politicians who are becoming increasingly isolated. Boris, this is a disgraceful article and you should be ashamed of yourself, go back to your sandwich (another British invention).
Ian that is a very fair summary
absolutely could not agree more!
well said!
The UK has been the USA’s strongest partner, they even follow us into one blunder after another, with regards to foreign policy. The, USA, should remain a strong partner, on trade, with the UK, and be a strong ally, just like the UK has been. Hopefully the USA will realize who there real friends are, and be loyal. Our memories are short, and we should remember who stood by our side, all the way back to 70 years ago, and we all know what happened then. Lest we forget, to our own demise.
Eventually reality will prevail. Right now the UK buys much more from Europe than Europe buys from the U.K. and it pays a big chunk of the European budget. I would not mind starting trade negotiations from this position of strength even although stricter immigration laws will not be popular with much of Europe. So what will happen if Europe puts import taxes on UK products ? I would not expect the UK to stand by and let for example all these Mercedes cars I see come in to the UK tax free. And as for the financial sector which is centered in London, it will be much more difficult to move this elsewhere than people think. They really know how to do this there and have a very effective intangible structure. I think of all the places that have tried to duplicate the expertise of Silicon Valley but never quite made it. Also individual trade negotiations with the US and other countries have the possibility of going much faster when free from the European structure. We will have to wait and see but I do not think the future is even close to as bleak as some make it.
If Britain really leaves and the banks in Italy and Germany fail, what is then to be done?
lock and load
That is disgusting. England is punished by the EU for not wanting immigrants that it does not have room for and has no work for. I would imagine that the veterans of World War II who fought fascism on the continent to keep Europe free are now regretting their sacrifice as a new type of fascism has arisen and appears to be taking vengeance for the losses suffered with the defeat of Nazism. It is sad that Brussels is determined to beat all of western Europe and portions of eastern Europe into submission and ultimately into the medieval dark ages. If Brussels is successful in England is the US next?
The new fascism is the Coudenhove-Kalergi Plan and we all know who sponsored that.
Not England but the UK. England is a region of the UK. You wouldn’t refer to Pennsylvania when you meant the US :-)
Can you tell me how this could impact on the Australian economy?….and….if possible, how to protect against this disruption.
If U.K. got its head straight, it could become the next “Switzerland” banking giant.
THE EUROPEAN UNION HAD ENGLAND BY THE THROAT, AND THEY MAY GO THROUGH SOME TOUGH TIMES. THE IMMIGRATI0N SITUATION WAS QUICKLY GETTING OUT OF CONTROL, LOOK AT FRANCE AND BELGIUM. I BELIEVE IN THE ENGLISH PEOPLE, AND IN TIME THEY WILL GET BACK ON TOP OF THEIR ECONOMY, AND THE US SHOULD HELP THEM IN THAT RESPECT. FREEDOM HAS TO BE PAID FOR, AND IT MAY CAUSE SOME SUFFERING, BUT IT IS WELL WORTH THE PRICE!
Not English/England but British/ UK.
Well, then Britain returns to first principles. One upside is actually the scorn of the globalists: they’ll be less likely to interfere as Britain rebuilds its fundamentals. Entrepreneurship is once again essential for the people, and government will be forced to pare itself down. At this stage pain is unavoidable, but the idea now is to plan for new growth.
The EU needs British markets to the tune of a net $65Bn surplus annually, with more than half that attributable to Germany. So I dont think trade embargos are a good shot across the UK’s bow for the EU to make. And just like is so many cases previously, the drop in the pound will, in reasonable time, result in an increase in UK exports that eventually fortify its value again. Markets work and respond. Big domineering restrictive regulatory superstructures do not.
The wealth of a nation is determine by the total productive capacity of its people, not solely it’s recources, land or its currency valuation. Look no further than the little, resource less island of Japan, or the massive land mass of Russia. Freedom is the biggest factor, and the UK has more freedom being out from under the boot of the EU. The highly predictive decline of the pound is the business cycles way to aid the recovery process.
That is indeed a very sad scenario that you charted.
Hard BREXIT could be a blessing in disguise in that it would force Britain into some reforms that harken back a century and a half ago when it was a commercial titan. Like they say, it kills you or makes you stronger.
A stroke neither kills nor makes one stronger. I believe Europe is in the throes of a series of strokes. The pound will continue to fall as England’s financial sector staggers; the UK has no physical industry to speak of. The European central banks are bankrupt, leveraged to the hilt with derivatives. State and corporate bailouts as bandages only prolonging the inevitable. You see: one can’t live on borrowed time, and borrowed money, forever.
how jolly! a small island nation. oh dear after showing the world how to spicca da english:-) and (english) is still the business language of the world,what happens if uncle sam goes the way of britain. ahh we start learning russian or mandarin (and cantonese). i am glad i can say ‘ni hao’ and ‘privet kak dela’; cheers, old chap,
they still have not accepted the fact that the prestige on the world stage they enjoy is be the Grace of the Western World they are “Legends in their own misguided minds”
You talk like the EU is some kind of bastion of strength that the UK is leaving. Give me a break!…it is on its last legs as most other analysts and especially ones from your firm will attest to…Hopefully the whole EU will collapse go bankrupt and dissintegrate by then and then the Brits will look like heroes for getting off the “Titanic” before it sank..which is inevitable…
Unfortunately for the UK and for all those that think the World turns around themselves (extreme nationalism), nowadays we are all too small to try to escape from Globalization, the sooner we understand that we are a simple part of the puzzle, not the puzzle; technology is bringing us all together; it’s almost funny, because Scotland did not go, and then the GB decides to leave the EU. No wonder Trump is doing so well with Populism and extreme Nationalism. Thank so much.
The UK lost its global empire when the USA took it over after WW2. We are a small island Nation.
After the UK previously broke trading ties with Europe (15/12/1538) when Henry VIII got excommunicated from the Catholic Church by the reign of his daughter (Elizabeth I) the UK was on its way to becoming the greatest trading nation on earth. The shackles of Spain and Portugal’s trade monopoly having been broken by this break with Rome, the UK was free to trade globally.
The EU has few trading deals as its difficult to keep 27 nations happy. Will history repeat itself? Who knows, but it is better than cowardly hiding behind tariff walls and being ruled by a dictatorship (the EU commission) because you are too untalented to compete against the worlds best.
Bring it on, and God Save the Queen!
Your queen is a huge part of the problem, siphoning off the backs of Her subjects. Giving nothing back. Your royalty caused the loss of the single richest resource the world has ever known: we Yanks. Imagine if George III hadn’t insisted on being tyrranical…the UK would still have the US and would be the unquestioned supreme economic power for centuries to come. Your queen serves no purpose whatsoever save to siphon wealth from your people.
What you are not saying is that the miserable Europeans want to give an example to the rest of what will happen when someone decides to leave…the UK will come back stronger than ever and then we’ll see what will happen…don’t you think so? In any case, the time is coming where the rest of the EU venture will collapse. Just look what has happened to the Greeks, the numbers are getting better but, the people are suffering and poverty is increasing!!!
Sounds like a great time for Americans to plan that UK vacation that they’ve always wanted to take but could never afford. The last time I was in England (Apr 2008) the pound sterling was $2.01 to the US dollar.
@Scott I was also over there at that time and I had a burger and fries at London’s Hard Rock…best $29.00 hamburger I ever had…or will ever have!
Sovereignty and national control are more important to the British people than anything – that is why the UK voted out. The term “hard Brexit†has not originated from within the UK but from the bitter EU “elite” who are now spitting out their collective dummies, I think that this attitude will soften over the next 2 years.
What deal would the UK renege on with the EU? Article 50 exists as part of the present treaty to enable a member to leave.
Great Britain has never been truly isolated and I am sure it never will be. I hope your coffee costs less next time in London, Boris!
The flash crash was due to computer trading systems.Within 6 minutes all of the losses
Were recovered.Of Course the catalyst for the decline in the cable was the speech by Theresa May indicating that article 50 would be invoked by March 2017.
Markets are now factoring in what Brexit will actually look like.
Whatever the future for the U.K. Markets hate uncertainty and we are guaranteed that
For 2 plus years.
Ah the wheels of justice move slowly creaking along. Finally a crack in dike on the precious metals manipulation case. 2 developments so far. http://www.kitco.com/news/2016-10-11/Scotia-Bank-Pressed-For-Emails-In-Gold-Manipulation-Case.html
Deutsche Bank Confirms Silver Market Manipulation In Legal Settlement, Agrees To Expose Other Banks. Even with Deutsche bank admitting complicity it will still be an uphill battle to prove this case but at least it is now at the discovery stage. We desperately need accountability in this matter to deter further manipulation such as that which happened last week when the Central Bankers and the Bullion Banks made a joint effort and dumped paper gold onto the market like falling snow. Gold fell $50 an ounce. The timing of this was perfect as the Golden Tiger China was closed for a weeks holidays. We no longer live in a world of rules just manipulation.
You obviously don’t understand where Keynsian debt based economics is heading,The worlds currencies are all fiat (paper) based, and central banks are under the delusion that they can print their way to prosperity ,does any right thinking person think that possible? It is a ponsy scheme that is destined to collapse.Along with the Euro, the US dollar and Japanese Yen all of which are in deep trouble with record deficits in their Trillions ,way outstripping their gross domestic production ! debts that can never be repaid.
We have not recovered from the 2008 bank crisis,we have not split the banks up into smaller entities, if anything they are bigger,but this time the Bond market will collapse as well.,not just real estate and banks.the biggest debter’s will fall the hardest.
The Pound may be dropping out of fear that Trump may not be elected…
forcing the UK to struggle on it’s own. Speculators are probably buying Gold, rather
that the English Pound.
The Media seems to be ignoring the wikileaks exposure of the close relationship between
certain (very biased) media people like Donna Brazile and the Democrat Election team.
Watch the Pound rebound after Trump Wins.
There is no English pound. It is the UK pound sterling – same in Scotland, Northern Ireland and Wales.
You must be kidding… and paid for this hit piece on the UK by some Establishment wallah.
If the GBP devalues to parity, Imagine how export oriented they will be. (Every country is trying hard to devalue its currency against others to remain export competitive and thanks to EU, US and the alarmist propaganda by people like you, they are getting their goal handed on a platter. A £/$ parity is a dream come true for UK.
Hi Boris
Currency moves are an important way of measuring not only how we got here, but where we are going. We are in for a choppy ride.
We will not be isolated. The UK has lots of friends around the world. Some are very interested in improving trade links (e.g. Australia). Even the EU has countries that want our business. I’m thinking of EU car manufacterers and wine producers. There are also all the non-EU countries that are surviving qjite happily.
One problem is that Great Britain has been living and acting (like the French) as though it is still a global empire. This is pretence. In reality we are an offshore island. The power house in Europe is Germany. The pound has been overvalued for yonks. It may now be undervalued but that will correct itself. As to £1 = $1 many US companies have for years priced on this basis. Computers even when not produced in the US were sold with a 1:1 ratio. As to the scare story that the GDP would be 9.5% lower this comes from the pre-Brexit Treasury forecast but “leaked” again by remain supporters in the Treasury. I cannot remember a UK Treasury forecast that has ever been proved right.
Well, I have been waiting for Boris to return with his “Goody, goody, the UK is on the skids, just as I hoped and predicted.†But he paints a very one-sided view. The fact is, the majority voted to leave the EU to regain control of our affairs from the unelected beaurocratic elite in Brussels. It was to be expected that the EU leaders would be making hard-line comments, firstly because their losing our financial contribution will hurt, but secondly because of the need to discourage other EU members from following suit. That is especially so considering how bad the problems of the Eurozone are – as well described by other Weiss analysts such as Larry Edelson. Moreover, the matter is not helped by so many of the Remainers, frequently now called Remoaners, trying to stymie the exit procedure. Considering how much national debt has been accumulated by the various central bankers specifically to depreciate their currencies, with little to show for it, the fall in Sterling is seen by many as most welcome. Finally, there are well qualified observers who take a more positive view of our prospects despite short term difficulties. So there!
B******T. Thats what every one said when the UK came out of the ERM. Why do you think they call us ‘GREAT’ Britain. Once we’re free of an autocratic corrupt european dictatorship – a body that hasn’t had its accounts audited for years and years because of fraud and corruption – you will witness one of the few countries in the world moving out of Bankruptcy. It may take a few years I’ll admit, but then we will not be on our own
The usual outpourings from this writer who hasn’t got a clue about the UK. No better proof of that than his final few words, “once again becomes a small, isolated island nation”. Again? When was Britain a small isolated island nation in the past?
And all he can go on about is financial matters. The British aren’t slaves to those whose brains can only cope with pounds, dollars, euros, yen etc. We have voted for national sovereignty.
But the writing is on the wall, not for the UK, but for the EU and the euro. By the time Article 50’s two years are up there won’t be an EU for us to leave, it will already have imploded. Watch for the Italian constitutional referendum result on December 4th, that will be the first crack in the dam.
As a forex trader one should be aware that until the Bretton-Woods meeting the British Pound Sterling was the worlds reserve currency. Then the dollar became the worlds currency while the Russian ruble was denigrated in every way possible. Both America and the U.S.S.R. became superpowers. Both defended their sovereignty vigorously. The EU is some pipe dream of globalist that believe humans can become one big happy family if they only unify around commerce. In fact the opposite is true. Commerce is usually starts war when defined by authority be it central banks, monarchies, oligarchies, cabals, cartels, etc.. Authoritarians don’t relinquish power easily but Brexit is the first breath of fresh air to returning free trade.
You never have anything good to say about about Brexit. Maybe we will make our own goods instead of importing.We on’t need half the rubbish anyway.
Hi, everybody. I live at the end of the world, in N.Z, but am a British citizen, and was in the U.K. in June. I voted ‘Leave’. The point is that the E.U which the Brits joined in 70’s is not the same as it is now, and certainly not what its likely to become. There is an un-elected elite, self appointing, of no fixed term of office who make the laws, (the E.U. commission), and a late ’70s European High Court ruling that said E.U. law over-rides States laws.(whereupon all states lost sovereignty). Britain will survive quite nicely, because it will now have flexibility, freedom of movement. Meanwhile, of course , there will be a lot of media noise, and no doubt some people will make a lot of money.
I am also now residing in NZ which is part of the very large Commonwealth of Nations – all alined to the UK.