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Boycott Britain? Europeans Looking Elsewhere for Cash

The GBP/USD currency pair
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August 9, 2017 By: , No Comments

The 52-week trading range of the GBP/EUR is 1.0809 on the low end and 1.2040 on the high-end. The current level of the Pound Sterling/EUR is 1.1059, and trending bearish. The precipitous decline in the value of the GBP over the past 13 months has ruffled the feathers of migrant workers. In June 2016, prior to the Brexit, £1 was the equivalent of €1.28. For the year to date, the GBP/EUR has declined from 1.17 to 1.1059, in line with the sterling’s overall performance against major world currencies. The GBPs run-of-form against the EUR, the USD, the JPY, CHF, the CAD and others is starting to have serious political and social ramifications for the UK.

gbp eur forex chart

Troubling Data from Office for National Statistics

Since the Brexit referendum on June 23, 2016, the number of migrants from the European Union coming to the United Kingdom has dropped. Likewise, the number of European Union migrants leaving the UK has increased. This has resulted in a skills shortage across Britain, and the brain drain continues.

The UK corporate sector has been issuing warnings about falling levels of migration from the EU, and the dire consequences on UK enterprise. It is estimated that European Union migrants added £20 billion to the UK government’s public finances between 2000 – 2011. That they paid more taxes than they took in welfare payments is also notable.

In May 2017, the ONS (Office for National Statistics) indicated that for the 2016 year that long-term net migration levels had plummeted 248,000, down 84,000 from a year earlier. In 2016 an estimated 117,000 European Union citizens left the United Kingdom, up 31,000 from 2015. The people who left the UK are mainly from East European nations such as Hungary, Czech Republic, Poland and the Baltics. The declines are evident in the University enrollment figures. UK University enrolments dropped to 136,000 – down 32,000.

 

Why Are EU Migrants Leaving the UK?

The decline in the value of the GBP has prompted the exodus of European Union migrants from the UK. During July 2017, the REC (Recruitment and Employment Confederation) reported its steepest decline in 1.5 years. The skills shortage now facing UK companies is reaching epidemic proportions. The skill shortage is being blamed on fewer European workers. And many of these workers are leaving the United Kingdom in favour of other European countries.

The current level of unemployment in the United Kingdom is 4.5% (March, April & May 2017), and the next release of data will be announced on Wednesday, 16 August 2017. There is always a lag effect in employment figures, however the ONS data is at odds with the broader trends we are seeing with EU migrants.

The impact of EU workers on the UK economy is not as pronounced as the media hypes it up to be. Naturally, the Bremain contingent of European Union workers have adopted a bearish perspective on the UK economy. And then there is the other side of the equation: the European Union is now in a much stronger financial position than it has been in years.

Recent trends among European countries are encouraging. The EUR has strengthened against the USD, JPY and GBP, due in part to the results of several elections, and the strength of multilateralism and a united Europe.

 

Rising Wages and Increased Demand for the GBP?

There is less urgency among European nationals to find work in the United Kingdom. The sharp depreciation of the GBP means it is inherently less attractive to Europeans. The GBP has plunged in 2017, and this dovetails perfectly with the EU migration patterns. The last time these trends were evident was the global financial crisis of 2007/2008/2009.

The GBP lost ground against the EUR, and European nationals headed back home. Much the same happened after the June 23, 2016 Brexit referendum. For the hawks, an EU exodus could be good for the GBP if a framework can be hammered out between Britain and European countries. If inflation starts rising, interest rate hikes could be next and this will boost demand for the GBP

 

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Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.

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