Following a perilous drop in its value in the immediate aftermath of the Brexit vote of June 2016, the pound was able to stage a cautious recovery. However, the largest asset manager in Europe says that the pain might just yet not be over.
In a research note that was published on Monday, the head of macroeconomic research at Amundi, Didier Borowski, which has approximately £1.2 trillion worth of assets under management, stated that it is important to remember that Brexit talks “are only just starting” and that people should also “bear in mind that trade negotiations are quite hard to settle.”
Borowski stated that although he thinks that the chances of a hard Brexit have dropped, “there is no scenario that can currently be ruled out,” which in turn means the pound’s path “is still very uncertain.”
Borowski said that his base case scenario is for the European Union and the United Kingdom to promote an “intermediate relationship, with free trade in goods but only very partial passporting in financial services,” which means that there is “clearly scope for the pound to depreciate.”
Borowski said that under the said scenario, he would anticipate the pound to trade down to approximately $1.30 and about 95 pence to the euro, from current levels of approximately $1.40 and just more than 88 pence.
Sterling is still trading nearly 6 percent lower against the dollar than where it was before the Brexit vote.
In the note, he added: “A weaker pound will mean lower investment and this will hit both residential and business investment. Such a slowdown will put a brake on the economy.”
The economy of the United Kingdom has already been slowing over the past year as the effect of inflation, resulting from that steep decline in the value of sterling, has eroded the incomes of households.
Last January, an initial official estimate revealed that the economy had grown by 0.5 percent during the last quarter of last year, taking growth for the year to 1.8 percent.
The Office for Budget Responsibility has predicted growth in 2018 to slow to 1.4 percent, and 1.3 percent next year.