What factors brought the euro value of the GBP from 1.5 euro in 2004 to 1.06 euro today?
A -41% loss, of the British Pound, that's a lot.
How could this happen?
Is it a cause a consequence of Brexit?
Does it reveal a weakness of the British Economy versus the Eurozone?
Is it an opportunity of increased competitiveness of UK, to export goods and services becoming cheaper if produced in the UK than in the Eurozone (UK vs Eurozone, comparable to Mexico vs USA?)
Your views?
Teething problems are bound to occur soon after Brexit and I am not particularly worried by the weakness of the GB pound against the Euro.. Given the fact that billions of GB pounds have recently been negotiated and generated by the UK in new world economies, that the FTSE has gone up by 9 notches recently, that new world markets are currently being negotiated in New Zealand, the USA, Australia and the Pacific countries I am confident that the GB pound will recover handsomely. A word of caution. I am not an economist and do not profess expertise in high finance. The view expressed above is a layman's view based on what facts he knows of.
https://www.bertelsmann-stiftung.de/fileadmin/files/Projekte/30_Global_Economic_Dynamics/Zusatzpapier-en-Brexit.pdf
It is an economic transition period at the peak of a global gealth crisis, which takes some years to stabilize.
https://tradingeconomics.com/country-list/competitiveness-rank
https://tradingeconomics.com/united-kingdom/competitiveness-rank
The competitiveness rank will be influenced positively.
A combination of a global economic recession and Covid-19 virus plus the uncertainties of Brexit. This is a layman's answer as I am not an economist but a lawyer. I hope that assist you
It is not clear what is the cause and what is the consequence. It is possible that Brexit is Britain’s reaction to the crisis, an attempt to get out of it.
On the other hand, a drop in the value of the pound, this is not unequivocal evidence of a crisis. Rather, the opposite it is a way to boost exports. One must watch the GDP change during this period.
I think it is related to the economical policy of the UK government and the consequences of leaving the European Union.
Driven by growth in the financial services sector, the pound was massively overvalued through the 1990s and early 2000s, which destroyed a lot of domestic export manufacturing. The drop in value is partly driven by the huge over valuation previously in the early 2000s. This is further compounded by (i) the global financial crisis and increasing debt-to-GDP ratio due to bank nationalisation, (ii) uncertainty over the Scottish independence (2014) and Brexit referendum (2016) votes, and (iii) large scale capital flow changes away from Europe towards East Asia as the centre of economic gravity moves towards more competitive labour conditions.
@Edward Oughton
Thanks for your analysis. Does it mean that parity of GBP and euro is roughly an equilibrium value based on today's status?
Time for UK to join eurozone, if it were not for Brexit's emotional path?
Renaud Di Francesco I guess there are mixed opinions. I would expect the pound to be marginally higher than the euro over the long term. The eurozone has been experiencing weak economic fundamentals and with Germany, the main European powerhouse, having been on the edge of recession for a while this makes the future look uncertain. Then on the other hand, I expect would the pound to rebound a bit after the final rules of trade are settled by early 2021. Confidence (hopefully) would come back with the pound/euro reaching some sort of equilibrium by around late 2021/2022 but this is guesswork. From what I'm seeing, I suspect the probability of the UK rejoining the eurozone is now very low, particularly after Johnson's large majority. It will now be 5 years before another election.
Brexit is coming, in the aftermath of an expected global economic contraction if not recession, after the global sanitary crisis.
There may be a J curve for the British GNP, first worse, then better as a new position of UK in the world settles.
The Thatcher era saw many factory jobs vanish, financial industries grow.
What will emerge and shape UK's economy in the Brexit launch phase?
This trend may be temporary. The Economic Crisis has begun in the European Union. Soon, I think the pound rate will increase
The key issue is not only the economic effects of Brexit, but also how these effects are interpreted by international financial institutions.
Regards,
Dariusz Prokopowicz
Teething problems are bound to occur soon after Brexit and I am not particularly worried by the weakness of the GB pound against the Euro.. Given the fact that billions of GB pounds have recently been negotiated and generated by the UK in new world economies, that the FTSE has gone up by 9 notches recently, that new world markets are currently being negotiated in New Zealand, the USA, Australia and the Pacific countries I am confident that the GB pound will recover handsomely. A word of caution. I am not an economist and do not profess expertise in high finance. The view expressed above is a layman's view based on what facts he knows of.
There are several reasons for the rise or decrease of global currency rates against major currencies such as the dollar and the euro. Including but not limited to the political and economic situation in general, economic resources and local investments. Therefore, this case does not mean that the British economy has been damaged for unknown reason.
Regards
Following the Brexit referendum result, the Pound dropped sharply in value against the Euro. The Pound fell 16% against the Euro in the 4 months following the Brexit referendum, including 6% on the day of the result. The large fall was due to the uncertainty it created.
Dear Prof. Di Francesco, thank you for sharing this excellent question.
I agree with Prof. Joseph Carby -Hall.
Best regards..
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