BBC news among many other sources has recently been reporting on Brexit with the BBC leading with the headline “UK shares remain fragile amid Brexit turmoil.”
Theresa May’s Brexit plan has caused political fallout, which in turn has caused the UK stock market to slip lower. Shares in UK-focused stocks including construction companies and banks continue to slide. As a result of this, the financial stock times exchange 100 index ended 0.3% lower at 7,013.38.
The only good and admirable fact from these figures is the stabilization of the pound. The pound which fell its biggest in two years has seen stabilization on Thursday. The pound maintains good figures as it was up 0.6% against the dollar at $1.2846. Although the sterling slipped 0.2% against the Euro to €1.1258, the pound becomes volatile again.
On Wednesday, November 14, the Prime Minister announced that she had secured cabinet backing for the draft Brexit agreement with Brussels. Alongside this comes the resignation of Brexit secretary Dominic Raab. On Thursday, Esther McVey’s resignation also rattled the markets. Back then in June 2016, when the referendum was made known, the pound fell 1.7% against the dollar and 1.9% against the euro. Since then the volatility recorded on Thursday was its highest. Since there was no further resignation the pound stabilized, analysts have however said that this stability achieved may not last.
Brexit and the Sterling
A foreign exchange strategist at Commerzbank, Ulrich Leutchtmanan said: “As long as no deal remains as likely as it is, there is a risk of a sterling depreciation spiral that appears to be self-intensifying.” Ulrich further explained: “The pound’s volatility has woken up from its 100-year slumber and is likely to remain reactive.”
The pound is seen as a barometer for the prospects possessed by the UK economy said, a senior analyst at Hargreaves Lansdown; Laith Khalaf. Mr Laith said: “Every time we see a likelihood of a bad Brexit risk, the currency sells off.
The fall observed in the pound on Thursday, was the largest percentage fall since the referendum in June 2016. The sterling slumped by 9.1% against the greenback. This was even greater compared to the recession provoking facts of October 2008. Mervyn King, the then governor of the Bank of England said: “the financial crisis meant the UK economy was on the verge of heading into a recession.”
The chief investment officer at the Canadian Civil Liberties Association Investment Management, James Bevan told the BBC 4’s Today program: “there are some interesting fundamentals affecting the pound at the present.” Among those factors are the slower economic growth in the UK than the EU and the United States. This means that the rate at which interest rates would rise in the UK would be slower compared to neighbouring countries. Thus conferring a disgusting sight of the pound to investors.
Earlier, it was mentioned that the FTSE 100 Share index dropped on Friday. Also, the FTSE 250 popularly referred to as a close measuring scale of the UK economy dropped 0.4% to 18,589.09. “If you look at the headline performance of the market, the benchmark index, it hasn’t really moved. For instance, the biggest companies in the index, Shell and HSBC both have large operations overseas that generate revenues in currencies such as dollars and euros which are worth more as the pound fell.”
The wider impact of Brexit
We cannot but note the effect of this turmoil on individual share prices. Companies heavily exposed to UK economy experienced the biggest falls in shares. Most especially, the house builders and banks. Royal Bank of Scotland recorded 3% fall, compared to the over 2% and 1% recorded by Persimmon and Taylor Wimpey respectively. The least was recorded by the Barratt development who recorded just 0.5% loss.
These companies were called the “Brexit beasts” by Mr Khalaf; ones which are more closely related to the UK economy. Mr Khalaf cited the case of Lloyds Banking Group, making a loss in 2011 now earning billions of pounds although trading at lower share prices.
The big-guns have however been in support of the Brexit draft plan published on Wednesday. The CBI Chair’s committee, Steve Murrells and Warren East of Rolls-Royce, have all voiced out on their intentions.
Steve talking about fresh food, told BBC Radio 5 live that stockpiling wasn’t an option, because they have not enough chilled capacity to do that. Companies dealing in just-in-time are however favoured by this scheme as was previously announced by Warren East. He said The company was just going to stockpile parts to avoid delay in production come 29 March.
The Brexit agreement has two essential economic benefits that must be achieved. It must avoid a no deal cliff edge by providing a transition. It must also open a new route to a good long-term trade deal. Without these, the implications on people and regions across the UK are what really matters. A practical way out must be provided and UK consumers and business owners must be offered a form of protection.