Brexit and the Pound: 2023 Analysis

Emma Davis Market Analyst October 20, 2023 7 min read

Brexit’s impact on the British Pound (GBP) remains a hot topic in 2023, years after the UK left the EU. Its effects ripple through trade, investment, and market confidence, shaping Sterling’s performance against the USD and beyond. Here’s a detailed analysis: 1. **Trade Challenges** New trade barriers have slowed UK exports to the EU, its largest market. Customs delays and regulatory hurdles have reduced trade volumes by an estimated 10-15% since 2020, weakening the GBP. In 2023, stalled negotiations on trade deals continue to drag on Sterling’s value. 2. **Economic Growth Struggles** The UK’s GDP growth has lagged behind the US, with Brexit-related uncertainty deterring investment. While the US posted a 2.1% growth rate in Q2 2023, the UK managed just 0.5%, pressuring the GBP downward. 3. **Political Volatility** Debates over the Northern Ireland Protocol and shifting government policies have kept markets jittery. Any sign of instability—like a sudden leadership change—can trigger a GBP sell-off. 4. **Monetary Policy Response** The Bank of England has raised rates to 4.5% in 2023 to fight inflation, offering some GBP support. However, this hasn’t fully offset Brexit’s negative drag, especially as the USD benefits from similar Fed hikes. 5. **Investor Sentiment** The GBP’s ‘safe-haven’ status has faded, with investors favoring the USD during global unrest. Risk-on periods occasionally lift Sterling, but these are short-lived. For USD/GBP traders, Brexit news remains a critical signal. A breakthrough in EU talks could boost the GBP, but ongoing uncertainty suggests caution in 2023.