Strength Of British Pound Could Boost Trade Negotiations

Our recent look at the UK’s pitch for post-Brexit trade with Africa expressed that London is prepared to make numerous overtures in the name of securing favorable arrangements. Most notably, British Prime Minister Boris Johnson pledged to end preferential treatment for EU migrants (something some are justifiably dubious he will follow up on), as well as that the UK would halt investment in various coal industries in pursuit of more low-carbon energy. Beyond these more political points, though, there was also a great deal of talk about investment between Britain and African nations (including the announcement of 27 commercial deals with African firms worth £6.5 billion, as was also stated in our previous article).

While the UK has long been a valuable trade partner for many nations around the world, through the EU, it has turned into an uncertain one in the run-up to Brexit. Naturally, this is due to the fact that new deals have to be struck, and world leaders are unfamiliar with the UK as a wholly independent operator. However, some of the uncertainty also stems from the fact that the impending Brexit has left the world uncertain about the UK’s own near-future financial outlook. For instance, might the pound suffer from the split with the EU? Could difficult negotiations with one partner lead the UK to be restrained with another?

These have been fair and reasonable questions to ask for some time now, but it’s beginning to appear that where the pound’s performance is concerned, Britain’s negotiating position may actually be strengthened. We can turn to the forex markets to measure how the pound has held up over the last year or so as the UK creeps toward Brexit, and indications are positive. In explaining forex currency pairs, FXCM identifies the South African Rand (ZAR) as, unofficially, the most significant African currency where international exchanges are concerned, or at least the only one included in widely traded pairs. And if we use the relationship between the ZAR and the British pound (GBP) as a sort of indicator for how the pound is performing against African economies, things look surprisingly stable. Charts indicate that the GBP/ZAR has actually strengthened marginally in the past year, demonstrating virtually no ill effects from the ongoing Brexit negotiations.

It’s conceivable that the pound’s performance, both in general and with respect to African economies, could in fact strengthen the UK’s negotiating position in new trade deals, and make the UK a more appealing partner than some might have guessed it would be a year ago. Furthermore, in covering the question of the pound after Brexit, The Telegraph recently quoted experts suggesting that the pound is likely to remain strong once the European Union exit is finally achieved. The belief appears to be that with the prime minister’s party having won a strong victory in recent elections, the pound should be on stable footing. That said, the same article pointed to the impending UK-EU negotiations as the more important factor.

Ultimately, it seems that the while the pound’s current trajectory makes the UK a strong and appealing trade partner for African nations in some ways, we’ll still have to wait and see what happens when Brexit is made formal before we discover where UK-Africa negotiations are headed. If Brexit has more stumbles, and the UK-EU negotiations don’t go well, all bets are off.