What's going on?
British politicking threw a spanner in the works of the UK’s preliminary Brexit agreement with the European Union on Thursday – causing spooked investors to flee both the country’s stocks and its currency.
What does this mean?
Some in the British government believe the draft deal doesn’t do enough to separate the UK from its European partners: two senior ministers resigned in protest, and it’s far from certain British legislators will approve the agreement. No deal whatsoever would leave UK and European companies facing tariffs when exchanging goods; investors need only look to US companies like Caterpillar and UPS to see the negative effect such tariffs have on profits.
The British pound fell 2% in value relative to the US dollar on Thursday. While not a huge drop compared to bitcoin’s wacky Wednesday, it’s a big move for a major (non-crypto)currency, since their values don’t tend to change much from one day to the next (tweet this).
Why should I care?
For markets: Keep calm and carry on… selling stocks.
Investors also sold UK stocks – some opted for the comparable safety of British government bonds, and others took flight abroad. The selloff affected companies differently according to the size of their international sales. The 100 largest UK companies are more global than the next-biggest 250. They’d be more insulated from a potential tariff-born domestic slowdown – and so didn’t suffer as much as their smaller counterparts, overall. But some of the UK’s giant stocks did get hit hard: British-focused financiers Lloyds Banking Group and Royal Bank of Scotland saw their shares fall by 6% and 9% respectively.
For you personally: A weaker pound means higher prices.
A falling currency is worth less abroad, meaning companies which rely on imports for at least some of their products will have to spend more for the same thing. They’ll probably pass that higher price onto their customers – a phenomenon often described as “importing inflation”. Oh yes – and Brits’ foreign holidays will get more expensive, too.