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Will the pound rise after Brexit?

Sam Benstead
Boris Johnson has until Jan 31 to pass his Brexit exit bill through Parliament

The final Brexit deadline — and this time it really is the final one — is nearly upon us. Parliament has until Jan 31 to debate and pass the Brexit exit bill. There will then be a transition period until the end of the year to agree a trade deal with the European Union. 

The value of the pound has moved on the back of Brexit news. A stronger pound has tracked the likelihood of a clean and business friendly break from Europe. A weaker pound has been linked to a chaotic Brexit or no-deal Brexit. 

The general election result caused the pound to rally because investors were encouraged that a strong Conservative majority would lead to a quick and business-friendly exit from the EU.

The consensus among experts is the value of the pound will remain unchanged after the Jan 31 Brexit deadline. This is because there is near-certainty that Mr Johnson's deal will be passed as a result of the strong Tory majority of 80 seats.

Instead, economists have pointed to the Britain-EU trade deal negotiations as the major source of future volatility for the pound, particularly around the Dec 31 deadline.

Andrew Brigden, of Fathom Financial Consulting, said he expects Mr Johnson to secure his Brexit deal in parliament this month and does not think there will be any significant movements in the pound's value. 

“The passing of the Brexit Bill is all priced in by markets and so we should not see any movement based around that event,” he said. 

Howard Archer, of economic forecasting group EY Item Club, went so far as to say that Britain's exit from the EU at the end of this month would not be a "non-event" for the pound, and that the real event to watch would be the trade deal negotiations. 

Thomas Pugh, of Capital Economics, also said he was not expecting much movement around the Jan 31 deadline, and that the progress of the trade negotiations between the EU and Britain are "crucial for the pound".

Looking ahead, Mr Pugh raised doubts that Mr Johnson would secure a deal with the EU by the end of the year as trade deals tend to take around three years to agree. 

“If he sticks by his pledge not to extend the transition period, then we could see the pound continue to fall as we approach the end of the year. If it looks like the Britain will end up trading with the EU on WTO terms, then we think the pound could drop to about $1.20," he said. 

However, if there is a trade deal or Mr Johnson backs down and eventually extends the transition period, Mr Pugh said the pound could rebound to $1.35 by the end of the year.