Brexit developments have emerged as a key fundamental factor driving movements in the value of the Great British Pound (GBP) in the FOREX market, as the currency fluctuates with changing investor sentiment.
David Davis, a former Brexit secretary, has said a further fall in the value of the pound would not be a bad thing, and refuted claims that the currency would go into “freefall” following a hard withdrawal from the EU.
Speculating on how markets would react to a no-deal Brexit, Davis forecasted a further five to ten points drop, explaining, “So, we’ll end up 20 or 25 below what it was before the referendum. That’s not a bad thing. The pound’s always been too high from the point of view of industry because of the effect of the City.”
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UK exports would theoretically become more price competitive in the global market after such a depreciation, potentially aiding Britain in cutting its balance of payments deficit.
Elaborating, Davis claimed the plunge would even be enough to cancel out the anti-competitive effects of EU tariffs, which would be implemented following a hard Brexit.
“Our competitive position with vis-a-vis Europe would be dramatically better even if there are tariffs.”
However, British consumers and businesses would effectively have to pay more for finished goods and raw materials under the new exchange rate, so lower standards of living and higher levels of inflation could be on the cards – the degree to which this will be a problem is dependent on the government’s long-term economic plan.
Moreover, Davis, a staunch Brexiteer who quit Prime Minister Theresa May’s cabinet following the Chequers meeting, urged MPs to vote down her draft withdrawal deal, calling on them to drive a “stake through its heart.”
Commenting on the prospect of a fresh referendum, Davis said he expects there to be a “parliamentary guerrilla war against it”, insisting “it won’t happen.”
Sterling plummeted in the aftermath of the 2016 referendum, and many analysts even suggested the pound could reach parity with the euro once Britain pulls out of the EU.
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