The Prospects of the British Pound in 2020: Insights from the Month of January

The month of January 2020 marks an important shift in the dynamics affecting the British Pound. For the past four years, the value of the pound had been heavily influenced by the looming threat of a hard Brexit. However, as the new year begins, other factors will start to shape the currency's value. This article delves into the potential impacts and key indicators that investors and economists will be watching in the coming months.

January 2020: A New Landscape

January 1st marks a transition from a period of speculation to a period of reality. The value of the British Pound will no longer be dictated primarily by the uncertainty surrounding Brexit. Instead, it will be influenced by a broader range of signals. A national holiday on January 1st and a weekend on January 2nd and 3rd will see little to no market movement during this period.

Market expectations are largely reflected in the current value of the Pound. Any significant impacts from the end of the negotiation period are already priced into the financial markets. The fishing industry, although an important sector, is too small to impact the larger economy significantly. Consequently, we may not observe a substantial change in the Pound's value in the immediate aftermath of the change.

Short-Term Supply Chain Challenges and Economic Recovery

Short-term supply chain challenges could still affect the British Pound. Issues such as long tailbacks in Dover and potential disruptions to manufacturing due to just-in-time delivery might impact the Pound. However, unless the situation is extremely severe, these factors are unlikely to have a significant effect.

The prospect of major manufacturing plants closing, a possibility that loomed large in the past, seems to have receded for now. This might explain the recent rise in the Pound observed in the last week or so. However, the longer-term impacts remain uncertain. The economy's recovery from COVID-19-related disruptions, as well as the introduction of new tariffs and impediments to trade, will likely play a crucial role in determining the ultimate fate of the Pound. Businesses, especially those in key sectors, will need to adapt to new conditions, which could lead to job losses and relocations.

HSBC's Economic Forecast for the British Pound in 2021

HSBC, the UK's largest bank, publishes significant economic forecasts that can influence financial markets. In 2021, HSBC analysts predict that even if the UK and the EU achieve a post-Brexit trade deal, the Pound will likely decline. This view contrasts with the more optimistic forecasts from other analysts who believe the Pound will strengthen against the U.S. Dollar and Euro, provided an agreement is reached before the year-end deadline.

According to HSBC, the Pound faces two primary challenges:

Trade Frictions: If a deal is reached, the UK will still face higher costs of doing business with the EU, which remains the country's largest trade and investment partner.

Slowing Economic Recovery: The UK economy has been more severely impacted by the coronavirus crisis than many of its global peers.

In the event of a no-deal scenario, the situation would be more severe, with potential economic reverberations beyond the financial markets.

Conclusion

The British Pound will see a new set of challenges and opportunities in the coming months. While the immediate outlook may not show significant changes, the long-term implications are complex and depend on various economic factors. Investors and businesses will need to stay informed and adaptable as the economy adjusts to these new conditions.

As we move into 2020 and beyond, the British Pound will continue to be a focal point in global financial markets. The insights provided here offer a starting point for understanding the dynamics that will shape its value in the months ahead.