What is Brexit?

Brexit - What is Brexit

Any mention of Brexit is enough to up our anxiety levels, as experts inform us that economic growth, employment and trade could suffer. In fact, the whole issue is as confusing as it is worrying. So much so that most people would probably prefer to discuss astrophysics than try to explain Brexit.

As the negotiation process rumbles on and 29 March 2019 draws ever closer, key issues remain unresolved: UK-EU borders, customs arrangements, free movement of people… the list goes on. For the pound – which fluctuates in value in response to political and economic events – the impact of Brexit uncertainty has been significant.

The problem for individuals and businesses with international payment requirements is we can’t precisely predict what will happen to the pound after Brexit. This is because we can’t be sure of the outcome of the negotiation process. What we can do is remind ourselves of the initial impact the referendum had on the pound and understand how we can manage the ongoing risk as Brexit approaches.

Why were we asked to vote in the first place?

On 22 February 2016 former Prime Minister David Cameron officially announced that Britain would vote on the fate of its relationship with the EU – seems like an age ago doesn’t it? However, with so much to consider in the here and now, can you remember why we were asked to go to the ballot box in the first place? Let’s refresh our memory.

The announcement of the EU referendum wasn’t a snap decision – far from it. In fact, the road to the vote was a lengthy one. To cut a long story short, three facts explain why the referendum was called.

  • The last referendum was way back in 1975 – many British citizens believe the bloc has transformed almost out of recognition since the UK joined in 1973.
  • Governments had tried and failed since then to hold another referendum.
  • David Cameron made a promise and kept it.

The groundswell of public demand for another EU referendum gathered pace following the 2008 financial crisis, as living standards in the UK declined. This brought the issue of immigration to the fore; a contentious topic that would have a huge influence on the eventual outcome of the vote.

Mr Cameron rejected calls for a referendum in 2012, but announced less than a year later that his Conservative Government would hold one if re-elected in 2015. Soon after he was voted in for a second term, the EU Referendum Act 2015 was introduced by British Parliament to commence the process that culminated in the Brexit vote on 23 June 2016. The rest is history!

How did Brexit impact the pound?

To say the pound suffered a hangover in the immediate aftermath of the Brexit vote is an understatement, as a potent cocktail of shock and uncertainty took hold. Despite what opinion polls had predicted, the British public woke on 24 June – the morning after the night before – to the news that the UK had voted to leave the EU. The pound’s pre-Brexit rollercoaster ride ended abruptly, as it plummeted in value under the weight of mounting political and economic uncertainty. The world was in shock, and a market meltdown the scale of which had not been since the financial crisis ensued.

The pound’s value fell by more than 10%, suffering the biggest drop in a single day for a major currency since the Second World War, hitting a 31 year low of $1.32 against the US dollar. Before slumping to a fresh low of near $1.21 later in the year, as concerns around the potential effects of Brexit continued to apply pressure. By mid-August, it had slipped to a three-year low against the euro, trading at €1.15. Firmly consigning the heady days of £1 = €1.44 just over a year earlier to the past.

The pound continued to struggle as 2017 dawned, with yet more Brexit related challenges on the horizon: Article 50 – the formal legal process for exiting the EU – was yet to be triggered, and the Brexit negotiations couldn’t begin until the powers that be did so.

Brexit summary: key events so far

The 1009 days between 23 June 2016 (the Brexit vote) and 29 March 2019 (Brexit day), is undoubtedly one of the most important periods in recent British history. Here are some of the major events that have already helped shape Britain’s post-Brexit future.

  • 13 July 2016: Theresa May replaced David Cameron as Prime Minister.
  • 29 March 2017: Mrs May triggered Article 50, starting the Brexit process.
  • 8 June 2017: Having called a general election, Mrs May lost her majority in Parliament.
  • 26 June 2017: Formal withdrawal negotiations began between the UK and the EU.
  • 13 December 2017: Government forced to guarantee a vote on the final Brexit deal.
  • 15 December 2017: Negotiations moved onto the second phase after agreements were reached on the Brexit “divorce bill” and EU citizens’ rights.
  • 19 March 2018: The UK and EU made decisive steps in negotiations, including dates for a transitional period.
  • 6 July 2018: Chequers Brexit plan formed, setting out a “common rulebook” for Britain and the EU.
  • 20 September 2018: Chequers plan rejected by the EU, making a no deal Brexit a possibility.
  • 18 October 2018: Brexit deal timeline pushed back by the EU, as “not enough progress” had been made.

Upcoming Brexit events to look out for

As Britain nears the final straight, there’s no chequered flag in sight to bring an end to the Brexit-fuelled uncertainty. Instead, we are left scratching our heads and asking what kind of deal, if any, will Britain leave with. To help you plan ahead, let’s set out the route to Brexit.

  • 29 October 2018: The Budget date has been moved to fit in with the negotiation process.
  • 13-14 December 2018: The last European Council of 2018 is widely considered the last practical date for a Brexit deal to be agreed.
  • Late December/early January: House of Commons vote to approve the deal.
  • January/February 2019: Brexit deal passed into UK law if approved by Parliament.
  • March 2019: Before the Brexit deal can take effect, it must be approved by the European Parliament.
  • 29 March 2019: Brexit Day!

How to manage currency-related risk

Hard or soft, deal or no-deal, whatever the outcome the question remains: how will Brexit affect me? With much still unresolved, the pound’s future is equally unclear. For anyone planning to send money overseas, Brexit’s impact on exchange rates has heightened the need to protect your international payments from further fluctuations. Fortunately, there are ways you can manage this risk.

Foreign Currency Direct provides individuals and businesses with a cheaper and more efficient way to send money abroad. You will benefit from expert market guidance from your own currency broker/ account manager? and a range of tools to manage the cost of your payments securely, including Forward Contracts and Market Orders.

  • Forward Contract: This enables you to secure an exchange rate today for a transfer that happens up to 12 months in the future – protecting your international payments from currency fluctuations.
  • Market Order: Secure an automatic trigger rate – whether a limit order or stop loss – to guarantee you achieve your target exchange rate whenever the market moves.