After the Britons voted in June to leave the European Union, the pound sterling responded with the worst slump for a few decades. However, a lot of economists share the viewpoint that the UK’s economy will benefit from the weaker pound. Despite the shock Brexit vote, the economy has not revealed telltale signs of the disaster. Indeed, the labor market is healthy. The stock market is also showing resilience. UK gilt yields remain steady. Recent reports have been logging robust home sales.
The pound sterling has been one of the most battered global currencies this year. The British currency sank 11% against the US dollar for the two trading days in the wake of the referendum. In October, the pound extended losses, having shed overall 16%. To make things worse, according to the survey of the International Monetary Fund the UK fell below France in the global rating of economic powers. At present, the UK is ranked 6th, giving way to its long-standing rival. On the other hand, the British economy will benefit from an undervalued pound. The basic economic principle reads that a weak currency is to boost export sales in the long term and a decline in the domestic consumption will be offset by growing foreign demand.
From this viewpoint, a persistent fall of the pound sterling is a welcome development for British producers. The pound sterling has tumbled to three-decade lows against the US dollar. Meanwhile, industrial orders are on the rise. Besides, the largest UK companies like British American Tobacco, GlaxoSmithKline, and AstraZeneca make the bulk of their revenues overseas. So their shares rallied following the pound slump.
