‘Britain’s Backbone’ Already Bending as Brexit Begins

Jeremy Cook, chief economist at the international payments company, World First, said:

So that’s it: a few minutes ago Article 50 was triggered, starting the formal process of withdrawing the UK from the European Union. Given we do not expect the negotiations to begin in earnest until after the French election has concluded in May, today’s announcement is unlikely to change the current state of UK economic affairs.

The pound remains the acute barometer of Brexit risk. Since the EU referendum sterling has weakened by 12.8% on a trade-weighted basis, which has acutely affected businesses trading overseas and it is those businesses facing costs in foreign currencies that are hurting the most. World First’s own analysis of cost pressures on businesses in the UK shows that the average firm is facing a 14.2% increase in input costs since the June 23‘rd vote. Utilities firms have felt the largest price rise in the basket of capital goods used in production at 19.9% whilst at the opposite end of the scale financial services companies have experienced a 6.1% increase in costs over the same period. It is little wonder then that CPI is at its highest since September 2013.

What now for sterling?

Much will depend on the early progress the UK government is able to make against its stated objectives. A negotiation process marred with delay and disappointment will increase market fears of a worsening of trade terms and could see a decline in the pound of another 5-7% through the rest of 2017. If that happens, the pressures on Britain’s SMEs, the backbone of the UK economy, will increase further.

The clock has started and two years of negotiations and ratification begin now. International businesses can easily benefit from the next two years, but there is ample opportunity for the unprotected, uninitiated or the simply unaware to be hurt by the ensuing currency movements.