The value of the pound has fallen to its lowest in two months against other major currencies following Prime Minister Theresa May’s plans to pursue a “hard Brexit” from the European Union.
Across the board, the pound fell by 1%.
Speaking to Sky News, May cited she wanted the best possible deal upon leaving the EU, dismissing any notion of “keeping bits of membership.”
In a firm statement, she commented, “We’re leaving. We’re coming out. We’re not going to be a member of the EU any longer.”
This has been interpreted by many as meaning the UK would remove itself completely from the EU’s single market, which holds extreme consequences for the UK’s economy.
As the day rolled on, by late morning, the pound was down 1.06% against the American dollar at $1.2155, and 0.89% lower against the Euro at €1.1561.
Speaking to the BBC, Neil Wilson, senior market analyst at ETX Capital cited, “Sterling is on the back foot on Monday after Theresa May’s comments were taken as a sign the UK government would prioritise immigration controls over single market access,” said Neil Wilson, senior market analyst at ETX Capital. Domestic populist politics trumps the trade card for now, it seems, and that is weighing on the pound.”
Wilson predicted further volatility in the pound’s exchange rate, raising the possibility of it bouncing back if the political discourse shifted in the UK’s favour.
Speaking to the BBC, Chief executive at RationalFX, Paresh Davdra added, “The looming fears that the UK might exit the single market continue to weigh down on the pound, and we expect the volatility to continue until further and actual on-ground clarity emerge. All is not lost for the UK, as the fall in the pound’s value has attracted international market activity and simultaneously boosted the country’s export figures.”
A weaker pound means UK goods will be cheaper for international buyers, however it increases the cost of imported goods. UK inflation is expected to pick up later in the year as the impact of higher import costs feeds through to the economic market.