What effect will the Brexit countdown have on the pound?

Economy & Politics | Reports
Hamish Muress, OFX

With one year go until Brexit becomes a reality, currency analyst at global payments platform OFX Hamish Muress reports on what to look out for over the next 12 months.

With a year to go before Brexit, one thing is clear – in the next twelve months, support for the pound will rely on greater transparency around the terms of the final divorce.

An agreement on the Irish border remains crucial, and could present the greatest risk to sterling over the next twelve months. On the flip side, an interest rate hike from the Bank of England could provide the pound with additional support, signalling that sterling is a currency worth investing in for international investors.

All eyes will be on the MPC’s meeting in May, though the Bank of England has been clear that any decision on interest rates will depend on Brexit’s continued progress.

The pound’s performance will be key for the many UK businesses involved in international trade. In a recent survey of small British businesses, 32% cited the weaker pound as their biggest concern since the EU referendum.

The good news is that sterling may well appreciate throughout the year, albeit slowly, providing relief for British importers in particular.

A key period to watch will come in September, when the Conservative party conference will be followed by the European Council summit, where any Brexit deal needs to be presented before it can be ratified.

As we’ve seen in the past, a rapidly-approaching deadline means ‘squeaky bum time’ for negotiators. For the pound, volatility is a likely outcome.

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