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Will the UK sink or swim post-Brexit?

With the resignation of Theresa May last week, the wagering of who will be the imminent new Prime Minister has ensued. Boris Johnson is a far-and-away bookies’ favourite, who is a big voice for delivering Brexit with as little compromise as possible.
Will the UK sink or swim post-Brexit?

“A no-deal Brexit has become significantly more likely,” said Steven Fielding, a professor of politics at the University of Nottingham. Having a no-deal Brexit means that frictionless trade with E.U. members would dissipate, import taxes would increase, severe transport delays on the Calais border, grocery shopping prices would increase. These are some of the short-term and immediate implications, whilst the long-term implications remain slightly more blurred.

Many analysts predict the pound to struggle upon a Brexit deal, and potentially to completely break upon a no-deal brexit. The pound could potentially fall well below 1.10 against the euro, and around 1.20 against the USD says Ian Strafford-Taylor, CEO of FairFX. This would have huge impacts on everyday prices for consumers, with imported goods costing more due to the weak pound. The economic disadvantages are not the only factor in the crashing the pound, though.

A fast fall in the price can be perpetuated by investors shorting the currency, making Brexit a dangerously profitable opportunity for hedge funds and the like. Additionally, those will foreign investments in the UK may pull out due to depreciating investments. This mass-sale alone increases the supply of the Pound, thus making it worth even less. Perhaps to combat this the Bank of England will have to play around with interest rates, and the Government may seek to lower business tax even lower than the proposed 2020 drop to 17% to keep hold of business.

Another huge detriment of this currency depreciation though is its impact on expats. There are over 300,000 Brits currently living in Spain alone, and around 157,000 in France according to ONS. For example, UK pension recipients still get paid in pounds, despite living abroad in Spain for example. For every £1000 they get paid, they could potentially lose out on around £150 for each of these transactions to Euros, if some experts are correct.

The same kind of implications could hold true for young expats who work digitally and receive payment in pounds. This kind of collapse in a currency has the potential to drive many expats back home to the UK, making it too expensive to live abroad. Not to mention resounding implication that visa requirements will have, driving many expats back home and fluttering back and forth would be a headache. One advantage of this would have been the idea of demand for the pound increasing due to expats returning - but this is offset by the number of recent immigrants in the UK that would leave.

Whilst it is widely presumed that the macroeconomy will take a significant hit, over a third of retail investors are actually hoping for a no-deal Brexit. A significant hit in the economy is almost always coupled with a hit to the domestic stock market (LSE) - opportunities are not scarce, though, as touched on earlier. The depreciation of the pound may have some benefits to the FTSE for companies who earn their money abroad and convert back to GBP. Some FTSE trackers, perhaps ETFs, may be seen as one of these ways to capitalise. If this is offset by a market overreaction and collapse, then spread betters and margin traders may be also be rubbing their hands.

Investors with less risk for appetite though will be sure to disagree. There will be many companies looking to relocate to a member country within the European market. Regulations, tariffs and friction in general will be deterring reason for businesses to settle in the UK. Perhaps extremely large multinational companies may still have an assembling location in the UK to ensure free trade to the UK for their products, but the opposite will also be true for companies that currently only have a UK location.

Buying property abroad in Europe may have some more red tape and bureaucracy, though seldom does this stop individuals when they can afford to make the move. Often, regulations just mean a lengthier process. A depreciation in the pound has some effects on grocery shopping and everyday imported goods. However, the effect is felt much more severely when it comes to buying a property abroad.

Paying hundreds of thousands for a property in Europe can means tens of thousands are added onto the price because of a poor exchange rate post-Brexit. For example, Greece is a popular destination for expats, and but its own domestic uncertainty coupled with the uncertainty of Brexit creates a difficult situation. A great way to help manage this is to compare companies to find the best rates. Some companies for example have large minimum transfers, but this comes with the benefit of lower margins from the company. Maximising the exchange rate for big transfers of money for expats is the number 1 way to mitigate the disastrous effects from no-deal Brexit.

Overall, Brexit is likely to have some unintended consequences which will act both as advantages and disadvantages. The debate for which one outweighs the other, and the deal or lack thereof that we should strive for is rendering obsolete for the public. With hardline Brexiteers such as Boris Johnson looking likely to take over number 10 and spearhead our negotiations, the likelihood of a no deal Brexit looms. This will affect everyone. From stay at home parents to digital nomads who are living abroad. The next step for the public is to face up to the vote of the public and equip themselves for the worst.
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