For the 4 months since its peak in April sterling has continued to tumble. After yesterday’s announcement – that Theresa May is planning a cabinet meeting on the prospect of a no-deal Brexit – sterling dropped below 1.29 against the dollar for the first time in over 11 months. Of course over the last 3-4 months the currency markets have faced broader dollar strength, with the DXY Index moving from below 90 to above 95. But most notable currencies have still outperformed the pound; the Chinese renminbi and Russian rouble for example are up over 2% and 3% respectively versus the British pound, even after the effects of today’s new US sanctions on Russia pushing the rouble above 66.5.
News of Prime Minister May’s plans come just after comments from BoE’s Mark Carney warning that the risk of a no-deal Brexit is “uncomfortably high” and International Trade Secretary Liam Fox commenting that chances of a no-deal had risen to 60%. Other pundits like Minette Batters, President of the National Farmers’ Union, concurrently warned that “The UK farming sector has the potential to be one of the most impacted sectors from a bad Brexit – a frictionless free trade deal with the EU and access to a reliable and competent workforce for farm businesses is critical to the future of the sector,” with their research demonstrating that the UK would run out of food by August 2019 based on a wholly self-sufficient scenario. It’s clearly not a realistic expectation but it does highlight how internationally integrated Britain’s food security is and perhaps gives a little credence to over half of the Guardian readers who have written in stating they had begun stockpiling in light of such concerns.
Contrastingly, there are still some, perhaps many (but equanimity doesn’t sell papers), who remain confident that the reasonableness of the EU and Parliament and the mutual disadvantages of a no-deal (and perhaps some leadership in diplomacy from Emmanuel Macron) are sufficient to either bring about an agreement on a compromise; or perhaps an extension to the Article 50 2-year period that would otherwise expire on the 29th March 2019. For now this still seems the most reasonable baseline expectation: not that it in itself this result would be something to get excited over – unless like Michael Caine you would "rather be a poor master, than a rich servant" and the bureaucracy of the EU is more anathema than the concerns of economic weakness. (The WSJ published a good article on the failings of the EU today entitled, “The EU Spent a Bundle to Unify the Continent. It’s Not Working”)
Until then, for those brits yet to take a summer holiday abroad there is still the option of South Africa, where sterling has retained its purchasing power, and of course Turkey where the lira has depreciated 24% against the dollar during the last 4 months compared to sterling’s decline of 10%.