Understanding the Factors Behind the Strengthening of the Pound Sterling Amidst Brexit
Since the Brexit referendum, the value of the pound sterling has undergone significant changes, with current valuations much higher than predicted post-EU exit. This article explores the factors contributing to this rise in the pound sterling, despite initial predictions that Brexit would harm the British economy.
The Rise in the Value of Pound Sterling
Before the referendum, the pound was valued at approximately 1.40 Euros. As of this year, the value has climbed from 1.10 to a high of 1.16, bringing it to levels experienced in April/May 2020. The Bank of England (BoE) has reported an optimistic outlook for growth, with its predictions indicating a recovery towards pre-COVID levels, especially by the first quarter of 2022.
Reasons for the Pound's Strength
The strength of the pound sterling can be attributed to several factors:
1. Speculation of Economic Collapse Stalled
Contrary to initial fears, the British economy did not experience a catastrophic collapse following the Brexit exit. There was no massive trade disruption, no food shortages, and no medicine shortages leading to public health crises. Additionally, the UK has effectively managed the COVID-19 pandemic, leading to a higher vaccination rate than many European countries. This has significantly improved public confidence in the economy and the pound.
2. Comparison of Pandemic Management
When compared to the European Union (EU), the UK has shown better pandemic management through its efficient vaccination strategy. The UK has vaccinated a significant portion of its population, protecting the most vulnerable from severe outcomes, whereas other EU countries struggled with similar vaccination efforts. This has positively impacted investor confidence in the pound sterling.
3. Positive Trade Deals
Liz Truss, the current Secretary of State for Business, Energy, and Industrial Strategy, has been actively working on trade deals. The UK has applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and there have been several positive trade deals with other countries. For instance, companies like Nissan and Cadbury have started to move their production bases from the EU to the UK, further bolstering the pound's strength.
4. Job Market Stability
Despite initial concerns of job losses, the UK has not experienced the predicted high levels of unemployment. While there were some initial fears of up to 800,000 job losses, these predictions have proven to be overly pessimistic. Instead, the job market has remained relatively stable, with many companies opting to invest in the UK due to its robust economy and lower operational costs compared to the EU.
Conclusion
The strengthening of the pound sterling amidst Brexit can be attributed to several positive factors, including effective economic management, successful pandemic control, and strategic trade deals. These factors have not only stabilized the economy but also given the UK a competitive edge in the global market, thereby contributing to the pound's increased value. As the UK navigates the post-Brexit economy, these positive developments continue to support the pound's strength.