The collapse of the British currency since the campaign for the Referendum on the Exit from the European Union, in 2015, when it was exchanged as 1GBP for 1.43 euro at its peak value then, has happened, with 1GBP buying roughly 1 euro now, after the failure of the UK to find an agreement with the EU [1].
Is it not an ideal time for the UK to join the euro-zone?
Were it to do this, it would clean its slate at once, rejoining the EU, and escaping the irrevocable recession if not depression the Bank of England says it is doomed to face with BREXIT, further aggravated by the Economic Crisis caused by Covid19, and job losses yet accelerating.
Were it do do this, it would join the "Recovery Package" opportunity and commitment, a New Deal of Europe of a magnitude not seen since the USA's New Deal of President Roosevelt.
Will the UK instead enter an era of splendid isolation and slow descent from among the Top Economies, as Spain centuries ago, when it was caught in the illusion of America's gold [2], and stopped developing its economic activities in new sectors?
Will we observe "retro-colonisation" of UK by:
-India (see Tata owner of Jaguar Landrover, the brand of cars which Her Majesty the Queen used to drive on her estates),
-China (nuclear investment in power production, jointly with French investors)?
-others? Russian investment in London real estate is significant, e.g....
Which economic scenarios do you envisage for the GBP and the British Economy?
A bright future, which has been promised, or an era of hardship as the post-World-War2-UK ?
References
[1] https://www.xe.com/en/currencycharts/?from=GBP&to=EUR&view=5Y
[2] https://en.wikipedia.org/wiki/Economic_history_of_Spain
Dear Dr. Di Francesco!
You spotted an essential point to consider: a way forward for the EU and the UK together. In case of a hard-Brexit both the UK and the EU will be worse off:
1) Martin Sokol, Leonardo Pataccin (2020). Winners And Losers In Coronavirus Times: Financialisation, Financial Chains and Emerging Economic Geographies of The Covid‐19 Pandemic, Journal of Economic and Social Geography, Volume 111, Issue 3, Special Issue: The Geography of the COVID-19 Pandemic. Citation:
" Taking Europe as an example, we have highlighted the fact that the pandemic‐induced crisis is likely to dramatically deepen the disparities between the northern ‘core’ and the southern ‘periphery’ and between the west and the east, as well as within the east. Further fragmentation is likely to occur at sub‐national levels unless bold policies are implemented to counter this." Open Access:
Article Winners And Losers In Coronavirus Times: Financialisation, F...
2) Welfens, P.J.J. Trump’s Trade Policy, BREXIT, Corona Dynamics, EU Crisis and Declining Multilateralism. Int Econ Econ Policy 17, 563–634 (2020) Citation: "Post-corona, global governance could change strongly because of the long-term political scarring effects of the pandemic shock which could undermine EU and Western stability." Open Access:
Article Trump’s Trade Policy, BREXIT, Corona Dynamics, EU Crisis and...
3) W.D. Carroll et al. (2020). European and United Kingdom COVID-19 pandemic experience: The same but different, Paediatric Respiratory Reviews
Volume 35, September 2020, Open Access:
Article European and United Kingdom COVID-19 Pandemic Experience: Th...
4) Cathleen O’Grady (2020). Scientists fear no-deal Brexit as deadline looms, News, December 1, 2020 © 2020 American Association for the Advancement of Science, Citation: "Flanagan says Brexit means a permanently different relationship between the United Kingdom and Europe that will demand constant shifts and negotiations. “This is what people don’t really understand,” he says. “It will never be over.” Open Access:
https://www.sciencemag.org/news/2020/12/scientists-fear-no-deal-brexit-deadline-looms
Hoping for the best, but preparing for the worst case scenario.
Yours sincerely, Bulcsu Szekely
It was a mistake for the UK to exit the EU. However, these were and are the politics of the UK then, and still are now. The fact that 1 pound is at par with 1 Euro does not say much, any other exchange rate will be fine. The most important factor for the UK to join the Eurozone is political will, and this is not there now. The country is almost evenly split in this issue. Before the UK joins the EMU will need to join EU and it did not pull out of the EU yet. UK is part of Europe and everyone lost from its departure. If a mild recession can bring UK to EU that will be great and this will assure its unity with Scotland. George K Zestos
The UK recently pulled out of the EU. So, there is no indication that the UK will join the eurozone. Countries dont join regional blocs simply because of currency exchange rate parity.
Remember currency devaluation is all part of the economic cycle with big benefits for exports, so currency devaulation is generally only bad for consumers. I wouldn’t be surprised if the pound to dollar rate goes back above 1.40 in the next year or two as it reached 1.37 last week. No, the UK will never join the Eurozone. Having control over your own currency is important, without which you lose a key monetary tool (Greece is a good example). Currency control is one pillar of post-Brexit trade policy for the UK, along with signing new trade deals, simplifying tax and other business-related policies etc.
Edward, thanks for this input. Is it what you genuinely believe or an official statement required to be politically correct?
Brexit is about control:
-border and anti-immigration measures
*students charged 21 000 GBP/year not allowed to work afterwards, they go elsewhere
*trained health professionals who staffed 30% of medically qualified positions, not coming any more. Health sector understaffed
*business innovators (like Marks, Polish cofounder of M&S) or technology domain creators (like Marconi, Italian, who gave UK a headstart in radiocommunication lasting to this day with 5G) would go to Berlin in 2021
-currency control
Germany has successfully re-unified, giving up its Deutsche Mark, joining euro, helping Greece restart
The EU has a strong relaunch package for all its members
The Bank of England controls the currency of an island... Cup of tea?
Dear all, many thanks for your interest and views.
With Brexit it has always been clear that UK wanted its own currency, and the control of it. After Brexit and the massive transfer of finance and trading observed to Pqris, Frankfurt, Geneva, Zurich, it's clear that UK has more control but less financial surface.
For years has it not been paradoxical that most of the trading including in euro was done from London?
The reign is over, and this is all the making of a political marketing product built on national pride and dreams of a lost Empire, not supported by any economic rationale, a populist move and nothing else ("British Trump" "he does it right", quoting ex-president of the USA Donald Trump).
It will not have escaped your attention that Services are not part of the Trade Agreement between UK and the EU, hence the strength in finance and trading built in the Thatcher years while destroying the manufacturing and industrial strength, is all gone.
In short the populist agenda from politicians looking for votes, has emphasised products, mostly imported, and not addressed high value services exported but not understood by the electoral base of the aggregated majority whose unhappiness drove towards Brexit.
Politics is too complex for me.
I only see economics, and it will shrink for some years before a new growth could happen.
In this programmed economic shrinking, where in addition tax payers will bear the weight of the huge Covid19 debt still growing, what will happen to the GBP?
Time will tell what happens to the City of London, there are lots of promising opportunities. London finance activities sensitive to EU passporting arrangements stand at around ~20% of total transactions (according to BoE documentation). It will hurt to lose ~20%, but this is offset with inward European banks opening London offices to retain access to the London market. This article by Mervin King (ex-BOE governor) is useful regarding the future of the City of London as it focuses on trans-Atlantic alignment: https://www.bloombergquint.com/gadfly/mervyn-king-city-of-london-should-align-with-new-york-not-eu
Dear, thank you for sharing this nice question.
I agree with Prof.@Manl Hadi Kanaan
Best regards
Kindly check https://www.investopedia.com/ask/answers/100314/why-doesnt-england-use-euro.asp
Despite the Euro having stronger trading links than the GBP, the GBP's nominal value is higher than the Euro. The demand in the international market sets the currency strength, while the value of a currency is based on purchasing power and the stability of the primary economy. https://www.birminghammail.co.uk/special-features/what-highest-rate-pound-euro-18272191
As per the prediction in my previous answer, the pound to dollar rate reached £1: $1.40 today. This is good for UK consumers, bad for UK exporters. There are already predictions from currency analysts expecting this to rise as high as £1:$1.45 by the summer of 2021 but let’s treat this with caution at the moment. The economic fundamentals look positive for the UK comparative with other western countries. Financial analysts say this is being driven by (i) the UK’s expedited vaccine procurement and rollout activities leading to lockdown restrictions easing by March/April, (ii) Brexit uncertainty fading and therefore UK assets and currency looking undervalued comparative with other countries, and (iii) rerouting of trade flows to overcome Brexit-related paperwork issues e.g. avoiding French links like Dover/Calais, instead going direct by sea via Spain. They say that one important point is that currently only goods going UK-to-EU are being checked, but the 6-month waiver will expire in the summer, at which point some analysts are predicting increased import substitution.
A recent freedom of information request details how 1,500 EU financial firms have requested UK banking licences post-Brexit. 1,000 of these new firms had no presence in London previously and are setting up new offices. The statement by Renaud Di Francesco above, which claims the City of London's 'reign is over', is highly likely to be incorrect and this is a good example. London is a global financial centre, and this will not change after Brexit, even if its role in Europe changes: https://www.bbc.co.uk/news/business-56155531
PwC’s annual CEO Survey of 5,000 global business leaders has found Britain is a more attractive investment proposition for multinational companies than it was before Brexit. The UK has overtaken India as the world’s fourth most promising growth opportunity, according to PwC’s annual CEO Survey (after the US, China and Germany). The survey included chief executives in 100 countries, half of them running companies with revenues of more than $1bn. More information here:
https://www.thetimes.co.uk/article/global-bosses-backing-britain-krrmmvfrb
@Edward Oughton, thanks for sharing! Do you think that the sustained public support of the workers unable to continue working during the pandemic helped make UK an attractive investment destination?
Investors or workers, as tax payers, might have to fund this debt. Do you think it will go towards more tax on salaries or more tax on profits?
Renaud Di Francesco I suspect the UK will remain an attractive location for investment due to lower labour overhead costs than some other destinations. For example, Airbus just said they want to increase their investment in the UK (contrary to what they said before re: Brexit). The IMF's new forecasts are out and the combined growth for 2021 + 2022 had the UK as the fastest growing G7 country, so 10.4% GDP growth over the two years, versus 8.2% for the EU and 9.9% for the US. There is a question mark over the UK's long term growth trend, but it is set to do very well in the short term. There is a lot of delayed Brexit investment to be made still.
Edward Oughton , agreed. I also note that the current trend of GBP/Euro seems upwards. The sound policy of vaccination in the UK, and its achievements, compared to EU lagging behind, can help put the Economy back on track. Do you agree with this?
Well, yes, I do agree. Some say it will go up to £1:1.20 euro (link below). The challenge for the UK is how long it takes businesses to adapt to new trading conditions with the EU, combined with how long it may take to have a comprehensive set of free trade agreements with other countries, which I suspect will take 5-10 years. https://www.poundsterlinglive.com/gbp-live-today/15239-pound-to-euro-forecasts-hiked-ubs-credit-suisse