Brexit: What`s next? Fundamental Analysis on GBP/USD Pair

Brexit: What`s next? Fundamental Analysis on GBP/USD Pair

Written by: PaxForex analytics dept - Tuesday, 04 February 2020 0 comments



Exactly at 23.00 on 31 January at GMT, three and a half years after the referendum, the United Kingdom withdrew from the EU, where 51.9% of Britons voted for Brexit.
On the one hand, this "independence" may be considered pretty optimistically. Since Johnson states that without being tied to the European Union, Britain can finally show its full potential. From first sight, it seems to make sense because once the EU is not dictating each step and the UK can choose now its own way.
On the other hand, we should not forget about the other side of a medal - economy. Economists believe that Britain's withdrawal from the European Union will lead to a difficult period of economy. Britain will become an ordinary country surrounded by economic giants such as the EU, the USA, and China.


It will be quite challenging for the city of London to retain its status as a financial center. The London Stock Exchange is one of the leading trading platforms in the world, but the EU, China, and the US will seek to develop its financial markets so more funds will be traded within their economies. Gradually, this will lead to a decline in capital flows to the UK. 
After the referendum, for the first time in 30 years, the British have spent more than they have earned. On average, it's £900. And across the country, it's over £25.5 billion. In 2017, people took out loans of more than £80 billion - a record for the last decade. And household deposits in banks added only about £40 billion - the lowest value since 2011.
Such behavior is fraught with problems for the economy in the future when people will begin to repay debts and restore the more familiar debt-savings ratio. To do that, they will have to reduce consumption, which accounts for two-thirds of the British economy.

Needless to say, that the UK is going through a difficult period: Brexit, sentiment in Scotland about leaving the UK in order to become a member of the European Union, possible decline of major economic institutions, all this and much more gives a negative assessment for further decline of the British pound. During these 3 years of "pending" Brexit, Great Britain has already lost 120 billion pounds, and also, according to experts' forecasts, this figure may increase by another 70 billion, already during the transition period. However, the EU, as always, is ready to provide a helping hand to its former main financial center and to extend the transition period by 1-2 years if needed, which will affect the economy of the UK itself. Mark Carney, head of the Bank of England, warned last year that the pound could devaluate by 25% in the case of Brexit, which could start immediately after the country withdraws from the Union and further negative macro statistical reports.



Probably, the United Kingdom will strengthen its position on the world stage shortly by concluding its own trade and economic agreements independently of the European Union after the transition period. In the first months since its withdrawal from the EU, the country will lose its position on the world market but will regain leadership in the major economic sectors.