With the United Kingdom poised to exit from the European Union by March 29, 2019, negotiations between Britain and the EU have become a major topic of discussion on every trader’s lips.
Indeed, every decision that will be executed in the coming days will have a long-term effect and greatly influence the global markets around the world.
Nevertheless, it has become quite clear for traders that Britain might exit the European Union without sealing a deal; especially if one brings to mind the cautionary speech Prime Minster Theresa May delivered in front of the UK Parliament on July 2018.
The lack of a deal could send massive shockwaves across the world’s global markets.
With that in mind, here are ways in which Brexit will influence trading as we know it.
New Tariffs Might Be Placed on Exporters Increasing Trade Transaction Costs
One of the disadvantages of Brexit is that the United Kingdom will no longer be part of the European Customs Union.
This shall translate to a massive increase in tariffs against UK-manufactured goods being exported by the UK, which might then result in immense delays in administration formalities.
For example, the BRC has anticipated a 29% increase in prices for beverages and food-based products that will be imported by the United Kingdom from the EU.
The United Kingdom will also be slapped by a 7% increase in non-consumable goods such as textiles and non-perishable goods.
A rise in rates of imported goods will adversely affect consumer purchasing, degrading the economy as a whole.
Moreover, enterprises in Britain that rely on raw materials originating from the European Union will have to deal with massive margin cuts.
The result would mean greater repercussions on the forex markets and global stocks.
The Strength of the British Pound to the Dollar Could Plummet
Currencies are consistently influenced by trading balances
Over the years, Britain’s current account deficit has been increasing and Brexit will most likely hinder the influx of foreign capital to the country.
This means that the United Kingdom will no longer maintain its status as a prime investment hub in Europe.
A decrease in worldwide investment would result in weakening of the Sterling pound to compensate the imbalances that have sprung up.
Trading experts have also predicted that a drop in the British pound will be experienced similar to what happened when the Brexit referendum took place.
It is estimated that the GBP may fall as low as 1.20 in relation to the dollar.
Home-Based Stocks in the UK are expected to plummet While UK-Based International Earners Could Profit
As the US dollar appreciates, UK-based companies working internationally could over perform.
Nevertheless, with the decline of the domestic currency, home-based stocks could be adversely affected.
EU-based firms will then see their trade with the United Kingdom becoming too expensive, resulting in a massive sell-out by European markets.
There Might Be A Decline in London Property Prices
From 2012, property prices in London have steadily increased as a result of the city’s massive status as a certified international financial region.
This resulted in an overvaluation of the sterling pound, which in turn pushed up exchange rates.
Many investors preferred to channel their money into real estate because of its low risk high-safety setup, resulting in massive capital inflows in the region.
After Brexit, the city will no longer be a distinguished financial hub due to market outflows of property funds.
In fact, since the referendum took place, property in London has declined remarkably.
The Bank of England Might Be Forced to Significantly Reduce Interest Rates
Even after the referendum, Britain still proved it possessed a resilient economy. This could be credited to the preemptive reduction of interest rates by the Bank of England so as to ease the markets.
Nevertheless, inflation has been increasing in the country for a while now, resulting in a weakening pound and an increase in oil prices.
What’s worrying is that after March 29th, inflation levels could rise exponentially which might force the British Central Bank to increase interest rates.
To counter this, a tight monetary policy might be implemented in the event that unemployment rates go through the roof. So it depends on the future growth rate of the region.
That being said, some traders are still hopeful that PM Theresa May will be able to strike a lucrative deal with the European Union.
It is safe to say though that the UK is not the only one being affected by the exit. It is expected that the cost of capital for European businesses will increase, resulting in the further weakening of the EU which is already in the red zone.