Sterling Decline - Once In A Generation Falls, But Likely To Keep On Falling

Doron Cohen, CEO at Covercy

11.10.2016 11:15 am

Sterling has fallen a staggering 4.7% since the start of October, which is simply unprecedented and really a once in a generation fall due to the Brexit vote. The worrying thing is that these massive falls might just be the start of continual decline in the currency.

What many are questioning is whether Britain will lose access to the single market. If it this happens, in the long term, financial organisations of all sizes will have to tackle a more complicated regulatory structure. If single market access is lost, two separate licences will be required for businesses looking to operate in the UK and across Europe - one for Britain and one for the EU. The consequences of this action are currently unknown, however it’s a safe to bet that jobs in the UK financial sector would be lost to other EU regions, Frankfurt being the destination most likely to benefit, as seen by rumours that VTB Bank might move there due to Brexit.

Despite Mervyn King’s recent comment that the dropping value of sterling is a welcome change, this is not the long-term reality for UK exporters. Once Brexit becomes a reality, in roughly two years, and if the single market access is lost, exporters will then have to pay import taxes imposed on their products in larger EU countries - making it much harder for them to compete against EU based exporters.