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How changes in sterling are affecting British businesses and personal finances

Sophie Lund-Yates and Ryan Kenny discuss the impact of Brexit on the stock market and currency, and what this could mean for your finances.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Figures quoted in the video correct as at 11 September 2019.

Read transcript

It’s been a busy week in politics. Has that had an impact on sterling?

Ryan Kenny: So ever since the 2016 referendum the pound has been really sensitive to Brexit developments, the last week has really proven that point. Back on Tuesday last week the pound was trading at about 1.09 against the euro and 1.19 against the dollar but since then it's risen about two cents against the euro to 1.11 and about four cents on the dollar to 1.23. Much of that is down to the prospect of a no deal Brexit becoming less likely. No deal is really something that the pound doesn't like the prospect of.

What does a fall in sterling mean for UK investors?

Sophie Lund-Yates: I think the key thing to bear in mind for investors is that the falling pound isn't necessarily bad news. The biggest example of that would be UK companies, large UK companies, who are making a lot of their revenue in international spaces. Because in sterling terms that means that those revenues, once they're converted back into pounds, have actually risen on that basis. The other good news to that side of the story is that these companies tend to be things like big oil and gas majors and these tend to be the bigger companies in say the FTSE 100/250 and that means that when they're doing well they actually prop up the rest of the of the index which is why even though sterling has fallen we're actually seeing a rise in the UK stock market.

Is a fall in sterling bad for any UK businesses?

Sophie Lund-Yates: So there's no getting away from the fact that companies that are relying on the UK for their revenues and profits are finding things a little bit more difficult. The best way to think about that is it's more of an import problem. So thinking specifically about, say, supermarkets who have had to go internationally to buy a lot of those products if they're then coming back and having to put those products on UK shelves at a weaker UK price, that can really squeeze revenues and therefore margins if they're choosing not to put their prices up to match.

What’s going to happen next?

Ryan Kenny: Well as developments come thick and fast a lot could happen between now and the 31st of October, it's really tough to make a call on where the pound’s going to go from now. It will largely depend on further political developments and any comments that come as a result of it. So for example, if we do get a general election what are the policies the main parties are going to be campaigning on?

What’s your message for investors moving forwards?

Sophie Lund-Yates: Exchange rates are going to move around even when Brexit's said and done, that's not going to be a solid thing. The key message for investors and what we would say is to make sure that they diversify their portfolio. That means not being under- or over-exposed to different types of companies and that means still owning some UK companies. We're not saying to turn your back on UK-centric businesses, the most important thing is that investors are diversified.

I’m worried about how Brexit talks will affect the pound in the future. What can I do?

Ryan Kenny: Well if you're looking to transfer money abroad there are a couple of options you could consider. If you worry about currency volatility, many currency specialists will actually let you fix an exchange rate for up to two years ahead, and so regardless of what happens in the currency markets it will help you to fix your costs. On the other hand if you're looking to capture exchange rates as they move you could consider a rate alert or a market order.

This is not a recommendation to trade in any of the areas or currencies mentioned. If you’re unsure, please seek personal advice. All investments and currencies fall as well as rise in value so you could get back less than you put in. Past performance is not a guide to the future.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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