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Potential consequences of a hard Brexit

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The last time investors – and the world – focused on Prime Minister Theresa May, she had to ask for a Brexit deadline extension, as Parliament hadn’t approved the plan she had negotiated with her European partners.

While she then secured an extension until October 31st, her battle to stay on as leader of the UK is over, as, apparently, is her campaign to convince Britain’s elected representatives to approve her plan to leave the European Union, seen by Brexiteers as nothing short of full surrender to Brussels.

Her resignation, due to take effect in under two weeks’ time, and the sudden, rapid rise of Nigel Farage’s new Brexit Party, have changed everything and a “hard” no-deal Brexit now seems to be firmly back on the agenda.

What is a hard Brexit?

While negotiations about the divorce between the UK and the EU seem quite unstable, if the UK leaves the block without any deal, there will be no additional transition period and both entities will be forced into unknown territory.

With the UK no longer a part of the EU, the European single market and its customs union, the ripple effect on Britain, its neighbors and the wider world will be felt for many years to come.

A hard Brexit would almost certainly lead to tighter border controls, reduced immigration and far-reaching legal changes, while some experts maintain that Britain’s trade with the continent would be severely impacted. Others insist that the UK trading with the EU on WTO (World Trade Organization) terms would be a simple affair.     

How will the pound react?

A no-deal Brexit situation could negatively impact the global financial markets, as market participants generally dislike uncertainty. A hard Brexit would also influence the Forex market. First, the GBP/EUR, then all other Forex pairs linked to the GBP and the EUR would be affected.  

Will the pound rise or fall?

Since May 6th, sterling hasn’t stopped falling and no one can say with any degree of certainty what’s going to happen to the British pound. What is clear, however, is that as long as doubt about the divorce between the European Union and the United Kingdom remains, sterling will be under pressure.

When investing in the Forex market, always remember to monitor the political, economic, and financial news that can impact the value of a specific currency by checking the economic calendar of your chosen trading platform.

Claire James
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