As organisations ramp up their Brexit planning, more and more are modelling different exchange rates and their potential impact on the bottom line. 

As we have seen since 2016, political events and market sentiment around Brexit has been creating volatility in the value of Sterling and over the last six months has driven down the value of the Pound. This volatility may increase in the run up to 31 October and any decision on Brexit will trigger more significant revaluations.

To help organisations with financial modelling we have pulled together a selection of predictions from global banks and experts.

First, a disclaimer

We don’t know what the exchange rate will be and if we did it would be foolish, or incredibly generous depending how you look at it, to post it here.

Forecasts are guides and numerical predictions are subject to change as more information becomes available.

Markets are also volatile and while these forecasts offer a fixed numerical value it is important to consider the trajectory they take – often overshooting before stabilising.

As the Bank of England notes:

“In response to past large economic shocks, the initial reaction of the exchange rate has been larger than the long-run response around which it settles. For instance, during the financial crisis the exchange rate depreciated around 30% initially but settled to be around 25% below its pre-crisis peak in the following couple of years.”

Following the EU referendum in 2016 Sterling went from roughly 1.45 against the Dollar to 1.3 overnight. In the 3 years since it has been as low as 1.25 and as high as 1.43.

A general rule of thumb

Despite the range of possible outcomes, and different forecasts, a clear market expectation exists:

The more detached the future UK relationship with the EU (the “harder” the Brexit) and disruptive our departure (e.g. without a transition period) the weaker the Pound is expected to be.

Currency forecasts

This table includes predictions from ING, HSBC and a recent poll of analysts by Reuters.

As you will see, the forecasts do vary: from Pound to Dollar lows of 1.1 to highs of 1.45 depending on whether the UK agrees a deal with the EU or not - a range of over 30%.


No Deal Brexit

UK leaves the EU to trade on WTO terms with no transition period

Deal Brexit

UK agrees a deal with the EU and enters transition until at least January 2021

 

ING

HSBC

REUTERS

Avg

ING

HSBC

REUTERS

Avg

Euros to Pound

1

1

n/a

1

0.85

c0.76

n/a

0.81

Pound to Euros

1

1

n/a

1

1.17

c1.32

n/a

1.25

Dollars to Pound

0.9

0.9

0.83

0.88

0.75

0.69

0.75

0.73

Pounds to Dollars

1.10

1.10

1.21

1.14

1.34

1.45

1.33

1.37


For reference the Bank of England forecasts are for a 15% deprecation in event of no-deal ($1 - $1.10) and a 2-5% appreciation in event of a Deal (with a ‘soft’ Brexit).

Further support with Brexit planning can be found on our dedicated hub at: https://www.grantthornton.co.uk/brexit/