What Will Happen to the Pound After Brexit? And What's Its Impact on UAE?

Published July 7th, 2019 - 06:37 GMT
Johnson will drive down the pound even further should he win the leadership contest.
Johnson will drive down the pound even further should he win the leadership contest. (Shutterstock)
Highlights
Industry executives believe that currency won't see big spike in second half of 2019.

Britain's pound is expected to trade in a narrow range until the final decision on Brexit is announced in October, but the currency will depreciate in coming months if Boris Johnson wins the elections to become the UK's prime minister, analysts and experts said.

 

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Industry executives believe that the pound will not see a big spike in the second half of 2019 and may trade in the range of 1 to 4 per cent.

"We do not expect any significant spike in respect of pound in the next few months and believe that the range would be between 4.55 to 4.78 against the UAE dirham over the next six months," said Adeeb Ahamed, managing director of Lulu Financial Group.

He said the upcoming fifth and final round of voting for the next PM of UK will play a major role in drawing up the roadmap for the country. The UK foreign policy, implication of no-deal Brexit, the growing divide between the cities and rural areas will determine the fate of the British currency.

"As of now, the pound will would move sideways until the voting is over and a decision is taken in respect of Brexit," he said.

Jeremy Hunt and Johnson will battle it out to be the next leader of the Conservative Party and also replace Theresa May as prime minister.

With Johnson expected to become the next UK prime minister, Nigel Green, CEO of deVere Group, warned that Johnson will drive down the pound even further should he win the leadership contest.

Johnson had said that Britain will leave EU on October 31, deal or no deal. He intimated he could try to renegotiate a better deal with the EU before pushing ahead with a no-deal Brexit if necessary. "Brexit aside, Johnson victory would almost certainly increase sterling volatility," Green said.

Pradeep Kumar, chief executive officer of UAE Exchange and Unimoni, said the British currency was seen under selling pressure last week soon after the release of IHS Markit Services data, which showed that the UK's dominant services sector struggled in June.

"Unless there is a clear path ahead for the UK, the pound's value could continue to suffer weakening across the board," Kumar said.

The British pound is down 1.6 per cent year-to-date, trading at 4.60 against the UAE on Saturday as against 4.67 on January 1, 2019. The UK is one of the largest trading partners with bilateral trade projects to jump from £17.5 billion (Dh18.47 billion) in 2017 to £25 billion (Dh115 billion) by 2020.

Impact on Brits in UAE

A weakening pound could affect the flow of British tourists as well as investment into the UAE. But on the contrary, investment from the UAE to the UK could see an increase.

"A low pound is, of course, bad news for British holidaymakers and travellers abroad - with trips to Europe and the US increasingly expensive. Even destinations such as Dubai and China are more expensive as their currencies are pegged to the US dollar," Green said. "Arguably, the key issue for the UK, however, is that one of its biggest and most important sectors, financial services, will suffer from another knock to the pound. It will be hit because it is built on foreign investment that puts its faith in a strong pound."

Kumar said British expats or UAE residents with property or other sterling-dominated investments in the UK are witnessing a deterioration in the value of those assets as the pound continues to fall.

"However, many investors might see the pound's weakness as a reason to buy property on the cheap or invest in other asset classes in hopes of an eventual recovery. In the coming few months, we should see continued investments and fewer withdrawals. Remitters will also be keeping an eye on the pound as they stand to get more value on their transactions in case the pound weakens any further," Kumar added.

By Waheed Abbas


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