Three years after the Brexit referendum, why is the pound falling again?
hours of June 24th 2016 the pound plunged. The unexpected victory of the Leave campaign in the Brexit referendum meant sterling lost 7% in a single day. Three years later the pound is falling once again. It is now at a two-year low, having fallen by 5% against the dollar since April—and 1% in the past month, the worst performance of any big currency . Many Britons ascribe any movement in the pound to the twists and turns of the Brexit saga.
Sterling has been weaker since the referendum because the prospect of Brexit has led economists to cut their forecasts for economic growth. It reached a low in October 2016 when Theresa May, the prime minister, promised a “hard” Brexit. Yet it appreciated fairly steadily in 2017 and 2018.This was in part because the economy was surprisingly strong.grew only slightly more slowly in 2016-18 than before the referendum. Unemployment fell to multi-decade lows.
Since then worries about the trade war have eased—to be replaced by a fresh concern, the health of Britain’s economy. In June the statistics office alarmed analysts by revealing thathad fallen in April by 0.4%, although May was better. Other survey data suggest that Britain registered no economic growth in the second quarter of the year .
Sterling’s fall has accelerated in the past week, as the two contenders to replace Mrs May have vied to sound more macho on the need to leave theon October 31st, with or without a withdrawal deal. Even now, few if any analysts believe that a no-deal exit is the most likely outcome. But many are on the brink of changing their mind. If no-deal starts to be priced in, the pound will have much further to fall.
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