On Friday 29 March 2019, the United Kingdom (UK) will leave the European Union (EU). The shape of Brexit is being intensively negotiated, but it is still unclear what this departure will look like. That reports Business Insider.
It is therefore high time to take a look at the most likely scenarios, and to see which direction the British pound could take.
1. No deal: hard blows for the pound
It is a departure without good agreements (a so-called 'no deal Brexit'). worst possible scenario. In this case, the borders between the EU and the UK will be closed overnight at the end of March. That has a huge impact on the British economy and everyday life.
There is then the danger, for example, that the healthcare sector will have to deal with a medicine shortage and that the shelves in supermarkets will become virtually empty. If the negotiators actually let it come to a no-deal Brexit, the pound will take a huge blow.
2.Hard Brexit: temporary price pressure
In the event of a hard Brexit, the borders will also close, but this will happen a lot less abruptly. In this case, both camps first made good trade agreements, which were also approved by the British Parliament.
As the UK loses access to the internal market in the EU, British companies doing business on the mainland will find it more difficult. In addition, there is a danger that many financial institutions will move from London to other European cities.
Chances are that the British economy going into a dip during the adjustment period is also very large, which will temporarily put pressure on the pound.
-Boris Johnson
3. Negotiate: pound scrambles up a bit
The major stumbling block to a hard Brexit is the border between Ireland and Northern Ireland. The EU is strongly committed to keeping this border open. On the other hand, the British coalition shatter if Prime Minister Theresa May agrees to a settlement that would require the country to tightly control the border between Northern Ireland and the main island.
The solution? Happy negotiating and extending existing agreements. This is also the most plausible scenario. The UK then continues to pay money to the EU and adopt the rules, without being allowed to participate in the decision-making process.
That is quite painful and former Secretary of State Boris Johnson has already called that the country will become a colony of the EU in this scenario. However, in view of the main alternatives, this outcome is the least bad option.
Brexit: countdown to March 29, 2019
A soft Brexit or new referendum would be even better, but given the political relations within Prime Minister May's Conservative Party, this should not be hoped for for the time being.
Yet you see that Dutch entrepreneurs are not yet taking any measures and hope that Brexit will not affect them. A flash poll commissioned by the Ministry of Foreign Affairs shows that only 18% of companies are preparing 'to a considerable or very large extent' for Brexit.
Although March is approaching, it is not yet too late to map out and hedge the currency risks with, for example, a currency option. The advantage of this is that you can protect yourself against very different scenarios. For a small (insurance) premium, entrepreneurs are protected against a fall in the pound (no matter how big the drop is).
Read more on Business Insider:
- 54% would like to stay in the EU in a new referendum
- There would be an agreement between the UK and the EU on customs union
- Banks bear the brunt of May's soft Brexit plans
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