It’s been a month since the UK’s exit from the EU, but has anything actually changed?
The UK has now moved into a transitional period which will last until December 31st. During this time, we exist under the terms outlined in our ‘divorce agreement’. Negotiations for a final trade deal are underway and the fate of the UK economy hangs in the balance. But just how much has changed in the space of one month and is there anything that can be done to guard against future instability?
Market developments and the impact on businesses
In terms of EU VAT, Single Market trading and involvement with the EU Customs Union not much has changed since January 31st. Under the withdrawal agreement terms, the UK will remain part of the Single Market and EU Customs Union until the transition period ends on 31st December 2020.
In the week immediately following the passing of the withdrawal agreement, PMIs looked strong, beating forecasts despite a weaker pound. The services sector came in at 53.9 (its highest reading in over a year), construction gained four points at 48.4 and manufacturing came in at 50. UK manufacturing went on to grow at its fastest rate (52.8 from 50.1) during the month of February, although economic growth is thought to have been hindered due to unfortunate incidents outside of Brexit, namely the coronavirus outbreak and Storms Dennis and Ciara.
The government has confirmed future plans regarding EU imports. In mid-February, Michael Gove advised that all business trading with Europe should prepare for “significant change” with regard to border checks, hinting that they made begin to impose trade barriers and enhanced regulatory checks, and the enforcement of customs declarations for all exports.
The government has also announced plans for several post-Brexit initiatives designed to strengthen the UK’s place where global trading is concerned. The launch of 10 tax-free Freeports across the UK in 2021 and the potential removal of import tariffs of less than 2.5 per cent are an attempt to champion global free trade.
Foreign exchange markets
Despite a strong performance and a high ending in January, the start of February saw a significant 1.4 per cent dip for GBP against USD amid fears that the UK was prepared to walk away from negotiations without a deal in place. The pound also lost value against the euro during the first few days of the transitional period but managed to recover by 0.12 per cent shortly after.
Mid-month, the pound managed to make gains after the sudden announcement of Sajid Javid’s resignation as Chancellor of the Exchequer. Further momentum was gained as his predecessor was named, causing sterling to rise against both the US dollar and the euro in reaction.
The strength of the pound will continue to sit in a state of flux as trade deal negotiations commence, much as they have since referendum results were announced. Sterling’s initial drop demonstrated this in early February, coming directly after conflicting comments made by PM Boris Johnson and EU officials regarding projected negotiation outcomes.
Preparing for the end of the transitional period
Although the current transitional period has scope for a 2-year extension, many organisations are already planning for the impact of the final Brexit deal in December.
Though very little can be done to influence the quality or terms of the eventual deal with the EU, there is much which can be done to cushion the impact of Brexit on business budgets and bottom lines. Opting to work with a currency exchange specialist can provide the guidance and specific services needed to traverse unstable markets and promote a stronger foundation of overseas trade into the future. That’s why we recommend currency specialist moneycorp, a company that has been helping customers buy property overseas for more than four decades.
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