Pound Falls On Brexit Fears – The Solution Has Already Happened
It’s entirely possible to be concerned about Brexit, the costs and pains of leaving the European Union. I think anything is worth the joy of doing so but am aware that not all share that view. However, there’s less to worry about when the pound falls because everyone thinks that it’s going to be more terrible than we all thought it was yesterday. Because the pound falling is the very cure for it all being more terrible than we thought it was going to be yesterday.
Thus Mark Carney, Governor of the Bank of England, says that a Hard Brexit has become more likely. The pound falls – this is good, this is the correct reaction to, the solution to, a Hard Brexit becoming more likely:
Sterling dropped against the dollar in early Friday trading after Bank of England boss Mark Carney said he believes the chances of a no deal Brexit are “uncomfortably high” and warned the government needs to do all it can to avoid leaving the EU with no agreement in place.
Contained within that reaction to the news is the solution to the news:
The pound declined on the currency markets in the wake of Mr Carney’s comments, falling below the $1.30 mark, but had recovered by early afternoon.
Mr Carney said that if a no-deal Brexit were to happen, it would mean disruption to trade and economic activity, as well as higher prices for a period of time.
Well, yes, a Hard Brexit would make Britain’s trading position more difficult. The cure for that is a lower pound:
Sterling went as low as $1.2975, or down 0.3%, following the comments, while British government bond prices rose.
Britain would be forced to revert to trading under World Trade Organisation rules it fails to reach an agreement on the terms for its exit from with the EU in March 2019.
WTO rules would mean that British exports would face tariff barriers when exported into the EU. That makes it more difficult to export and presumably, prices having this sort of effect, mean that we’d export less.
So, what do we want to happen in such circumstances? We’d like some method of making our exports cheaper even though they face those tariff barriers. A decline in the value of the pound does that nicely, it makes our exports cheaper. That is, a fall in the value of the pound is the cure for a no deal Brexit and the imposition of WTO barriers to our exports. The cure is in the very reaction to the news.
It’s worth pointing out that the pound has fallen, since the referendum vote, by more than we would need to compensate for a no deal Brexit. The reaction to the possibility has already taken place.
Posted: 24th, August 2018 | In: Money, News, Politicians Comment | TrackBack | Permalink
