Would Brexit Lead to a Run On the British Pound?

Posted by Allison on 27 May 2016, 14:08

Everywhere you look, there are polls and forecasts relating to the possible outcome of the European referendum due to take place in a matter of weeks now. Regardless of what happens, there is a real chance the value of sterling could change. The popular theory is that staying in the EU would make the value rise, while getting out would make it fall.

But is it really this easy to work it all out?

There could be a drop in the value of sterling immediately following Brexit, if this was to happen next month. However, some experts have said the fall would be short-lived, and Britain would then recover – and perhaps even do far better without the shackles of Europe to contend with.

Of course, we get different news from the Remain camp, and different news from the Leave camp. We will only really know for certain once the votes are in and the majority have spoken. No amount of polls or vote prior to that time really count for anything – especially as some seem to be overwhelmingly in favour of Brexit, while others are overwhelmingly in favour of staying.

The value of the pound against the euro was 1.3624 on 1st January this year. However, while there were some occasional rises after that point, the overwhelming trend was definitely down. By Wednesday 6th April, that had dropped dramatically to a low point thus far this year of 1.2375 – a loss of 0.1249 all in all. Yet while there have still been some drops from that point to the present day, the overall trend has now gone in the opposite direction. This means at the time of writing the pound is back to 1.3170.

So would the pound really drop like a stone in the event we left the European Union next month? And even if it did, and it went beyond the 1.2375 rate reached in early April, would it really matter in the long run?

The truth is, no one knows what will happen regardless of the result of the referendum. Many believe we will recover from any kneejerk reactions that might occur, and therefore could be in a far better position in the future. Can we say the same if we were to remain? We shall find out for certain what happens in one way or another next month.

Until then, we must keep an eye on the performance of the pound, and see whether it does indeed rise or fall once the result is known. The one thing we should all remember is that any initial reaction will be just that – an initial one. The rates could be very different by the end of the year.