FX.co ★ Has UK economy benefitted from Brexit referendum?

A year has passed since the Britons voted to leave the European Union, thus terminating the UK’s 40-year membership in this political and economic alliance. Though the historical referendum secured the public will formally and the actual exit from the EU will follow a few years later, the kingdom has been somehow affected.

The UK economy has not experienced the Brexit aftermath in full yet and still reveals solid fundamentals. However, the pound sterling instantly plummeted in the wake of the referendum. Last year, the pound shed over 15% against the US dollar and it is still in a downward spiral. According to the Lisbon Treaty, the UK remains in the European Union until March 2019. Nevertheless, despite some temporary gains the British currency has been holding the title of the worst performer among other global currencies for a year. The Turkish lira used to weaken even worse than the pound sterling, but recently the lira managed to recover its losses. Interestingly, export sales usually benefit from a weaker national currency as it provides domestic exporters with competitive advantage in the global trade. Citing the UK National Bureau of Statistics, this economic theory does not work nowadays and a correlation between the pound and UK exports is getting more intricate.

The depreciation of the pound sterling fueled rapid consumer inflation. The annual pace of headline inflation jumped to 2.9% in May 2017 from 0.5% a year ago. Bearing in mind that wage growth lags behind consumer inflation considerably, British consumers have cut their spending that comes as no surprise. In a nutshell, consumer spending used to be the main driving force of the economic growth for a long time. As a result of low consumer activity, the UK entered the 2017 year as the slowest economy among the G7 countries. The UK has revealed worse GDP data than Italy and France.