Brexit fears trashed pound. May’s exit offers little relief
British Prime Minister Theresa May’s resignation is unlikely to end a tough run for the pound, which has fallen steadily this month as the risk of a damaging no-deal Brexit rises.
The pound edged higher to almost $1.27 on Friday following May’s announcement that she’ll step down in June after failing in her bid to secure Britain’s exit from the European Union.
But sterling has dropped 2.9% this month against the US dollar and is the worst performer of the world’s 10 major currencies. It’s also been on a losing streak against the euro, and there’s little sign of the pressure easing up any time soon.
That’s because whoever succeeds May as prime minister will face the same Brexit nightmare. The European Union has said it’s done discussing the terms of Britain’s departure. And the current deal, negotiated by May, faces seemingly insurmountable opposition in Britain’s parliament.
“To borrow a phrase, nothing has changed, or at least, very little has,” Edwin Morgan, the head of the Institute of Directors, a business lobby group, said in a statement. “A new leader will be faced with the same political challenges and the same economic realities.”
Analysts predict that May will be replaced by a Brexit hardliner, which raises the odds of the United Kingdom crashing out of the European Union — its biggest market — without a deal to protect trade.
Paul Dales, chief UK economist at Capital Economics said the leadership contest will reduce the time available to agree a Brexit deal by October 31, the deadline agreed with the European Union.
That means the risk of another delay to Brexit or a “no deal” Brexit are rising, he added.
The latter would be harm the British economy, according to the government’s own analysis. Some economists fear it could even trigger another recession.
“We would anticipate the economy to slow and fall into recession around the turn of the year,” said Azad Zangana, senior European economist at Schroders.
Business groups urged British politicians to use May’s departure as an opportunity to get their act together and deliver a Brexit deal that works for the economy.
“Our hard-earned reputation as a great place to do business has been tarnished,” said Adam Marshall, the director general of the British Chambers of Commerce. “A new prime minister must work to avert a messy and disorderly exit from the EU,” he added.
The prolonged uncertainty over Brexit will keep markets on edge.
“Although the pound offered a mixed reaction after May announced her resignation date, investors should fasten their seat belts as the new round of drama ahead is just starting,” Lukman Otunuga, an analyst at currency trader FXTM, said in a note.
The pound peaked at $1.50 on the eve of the referendum in June 2016, when nearly 52% of British voters backed Brexit.
Ivana Kottasova contributed to this article.