With every lurch toward a no-deal Brexit, the most chaotic way that the UK could quit the European Union, the British pound takes another dive. It lost nearly 20% of its value against the dollar in the months after the June 2016 referendum. Then, after clawing back some of the decline, forecasters now warn that the pound could lose up to 25% of its value if Britain crashes out of the EU by the March 29 deadline without any transitional arrangement in place.
This is generally seen as a bad thing. But some prominent Brexit supporters, such as Conservative MPs Boris Johnson and David Davis, have become quite sanguine about it. In an opinion piece for the Times of London, Davis (a former Brexit secretary) suggested today that a falling pound might not be “such a bad thing.” Former foreign secretary Johnson, meanwhile, told reporters that “the pound will go where it will.”
Could a crashing pound be a good thing? It depends who you ask. If you’re a foreign billionaire looking to load up on London property, it’s definitely good news. Ditto if you are a tourist coming from abroad. But these groups aside, who is a weak pound good for?
Goods exporters are the most obvious beneficiaries, as cited by Davis—a weak pound makes British products more competitive in foreign markets. But the UK is not a manufacturing-driven, export-based economy: it runs a big trade deficit. What’s more, some 50% of UK exports incorporate imported components, which could undo the cost benefits that come with pricing goods in pounds.
For most ordinary Brits, it’s bad news. The UK brings in around a quarter of its food from the EU (and exports about half as much as it ships in). These, along with many other imported goods, will get significantly more expensive if the pound crashes—even before you factor in trade tariffs that the UK could try to cut to help soften the blow. People will be able to buy fewer things for their money, meaning a fall in spending—and growth—more generally.
The UK’s large financial services sector is also likely to suffer, as explained by economist Duncan Connors:
Financial services contributed 14.5% towards British GDP in 2014, as opposed to 11% for manufacturing and 7% for construction. Plus, finance is part of an overall service sector that forms 80% of UK GDP. The country’s finance industry is likely to suffer because it is built on foreign investment that puts its faith in a strong pound.
Property prices, especially in and around London, would probably come under pressure as the financial sector shrinks. If the economy gets bad enough, foreign buyers may choose to stay away, too, removing another support to the UK’s gravity-defying property prices. That might sound good to people long priced out of homes by bankers and oligarchs, but all the other negative effects of a sudden depreciation of the pound would probably be even worse.