While Britain's post-Brexit economy has some relative bright spots, the pound isn't one of them: The currency has never been weaker.
Brian Milner, Richard Blackwell and Paul Waldie take stock of what it means for Britons and their trading partners – from importers to tourism to the property market
The basics: How bad is it?
by Brian Milner
Well before Britons stunned the world by narrowly voting to quit the European Union, analysts had been warning that the first victim of a Leave victory would be the British pound. Its dramatic plunge since the June 23 referendum is one of the few dark forecasts that has turned out to be accurate so far.
The pessimists predicted that the less-than-robust economy would slide into recession as businesses and consumers got whacked by a double whammy. The weaker pound would drive up inflation and hammer the housing market, while global banks and other key employers would scale back investing plans and shift assets to other EU states.
Some of these developments may yet materialize once the thorny negotiations over Britain's withdrawal from the club get under way.
But for now, the latest data show that the economy has fared better than the gloom-and-doom crowd predicted, unemployment remains at its lowest level in more than a decade and consumer confidence has bounced back to its level before the Brexit vote.
The battered pound has been a notable exception to the keep-calm-and-carry-on response.
The pound slumped to a 31-year low against the U.S. dollar on Oct. 6. When measured against a basket of currencies of its leading trading partners, including the euro zone, the U.S. and Canada, the pound has never been weaker.
The upshot has been higher costs for imports, including energy and services, which tend to boost consumer costs. Inflation climbed to a two-year high in September, although the annual rate remains a low 1 per cent.
But a devalued currency will also increase demand for domestic goods, boost export earnings, draw more tourists and make it cheaper for foreign buyers to acquire luxury properties and other British assets.
So British drug maker GlaxoSmithKline, which sells 95 per cent of its products outside Britain but pays the bulk of its expenses in pounds, is looking forward to fatter profits. And Nissan has signalled its intention to invest in expanded auto production regardless of Brexit complications, such as potential tariffs on exporting to EU countries.
On the other side of the corporate coin, the likes of Apple, Microsoft, Dell and France's PSA Group, maker of Peugeot cars, have all jacked up prices in Britain.
The rush to raise prices smacks more of opportunism than genuine concern about the economic havoc that could be unleashed by Brexit, a two-year process that has yet to be launched.
Still, the pound will remain under pressure as long as Britain faces an uncertain future outside the umbrella of the single, duty-free European market.
The currency remains overvalued by as much as 10 per cent, based on the eventual toll Brexit could take on trade, investment and the broader economy, Goldman Sachs analysts concluded last week.
But when it comes to currency swings, perceptions matter more than reality, as Bank of England Governor Mark Carney told a parliamentary committee last Tuesday.
"It's a bit early to be making those determinations [about the impact] because the Prime Minister has been very clear that [the government] will pursue an orderly Brexit, that we'll get the best deal possible, that there have been no negotiations thus far, there's no running commentary on specifics, so it is a perception of the market."
Mr. Carney, who on Monday announced that he will stay on as Governor of the central bank until mid-2019, may have more to say about the pound when the Bank of England makes its decision on interest rates on Thursday.
What it means for importers
by Richard Blackwell
SIMON DAWSON/ASSOCIATED PRESS
For Canadian retailers that specialize in importing British products, the fall in the value of the pound is good news, but not enough to make a dramatic difference in the way they price their products.
"It's been a little bit advantageous, but it is not a big windfall," said Paul Million, who owns Simply British Foods, a Whitby, Ont.-based importer that sells cakes, chocolates and groceries.
Mr. Million said the recent decline in value of the Canadian dollar, relative to most other currencies, means the benefits from the fall of the pound have not been as pronounced here as they are for importers in the United States, for example.
He also said almost everything he imports from Britain is subject to some kind of duty, and the rates differ on every product, adding another layer of costs. He also said there are still some restrictions on what can be brought into Canada, a legacy of the "mad cow" scare which eliminated all beef imports from Britain for two decades, until the rules were finally loosened last year.
Mr. Million said the Canada-Europe free-trade agreement, known as CETA, should eliminate most of the tariffs and restrictions – if Britain is still a participant – and he is impatient for the deal to be ratified and put into effect.
Creig Stearne, who runs the British goods retailer Empire by Bullet in Toronto, said he plans to adjust the prices on a few items that are cheaper to import. But his gains from the currency shift are mitigated by the hassles of the duties he has to pay, and his extra costs for adding bilingual labels to British products have not changed.
Still, the lower pound has been "a bit of a help" and Mr. Stearne says he may lower some prices on Christmas food products now arriving.
What it means for real estate
by Paul Waldie
The falling pound has provided an unexpected lift to Britain's housing market just as it was beginning to feel the impact of Brexit, at least in London. While the vote to leave the European Union hasn't had the dire impact on the property market that many experts predicted, there has been a slowdown.
House prices across London have not been rising as fast since the June 23 referendum and the number of transactions has slowed too. Prices jumped 7.1 per cent in the three months ended Sept. 30, but that was down from a 10-per-cent gain in the previous three months. And prices in parts of the city have actually fallen because of concerns about the effect Brexit will have on the city's financial sector. The market was already softening before the referendum because of higher taxes on high-end property purchases and a lack of supply.
Commercial property has been hit even harder, with some property funds briefly suspending trading in July. Commercial property transactions dropped 60 per cent in July and August year over year, according to the Bank of England.
There are signs that the fall in the value of sterling is beginning to turn the market around. Overseas investors, who had largely shunned Britain since the referendum, are beginning to take a second look. "Indeed, Brexit appears to largely be a domestic concern, with overseas investors continuing to target the U.K. and viewing London as a global safe haven," said a recent report by M&G Real Estate. Auctions of small commercial properties have begun to pick up with the country's biggest auction house, Allsop, recording its biggest sales volume in a decade this month. The fall in the pound has led to more interest from buyers from Hong Kong, China and South Africa.
What it means for travel and tourism
by Richard Blackwell
FRANK AUGSTEIN/ASSOCIATED PRESS
Over the past several decades, travellers going back and forth between Britain and Canada have experienced widely divergent exchange rates. In the early 1980s, it cost as much as $2.90 (Canadian) to buy a pound, while the recent decline in the value of the British currency has brought it closer to $1.60, very near the low end of the long-term range.
If the lower pound holds, it may cut into the number of British travellers coming to Canada, as trips here will be more expensive. The political turmoil surrounding the coming Brexit could also dent the economic confidence of Britons, some of whom may decide to hunker down and stick closer to home.
But it is too early to see any concrete impact from the pound's decline, tourism experts say.
"The U.K. market typically books early," and thus much of the next few month's travel volume is already baked in, said David Goldstein, president of Destination Canada, the Crown agency responsible for marketing travel to Canada. On top of that, about half of British visitors to Canada come here to visit friends and family – and that kind of travel is less influenced by exchange rates, he said.
"There will be some impact into next summer," Mr. Goldstein said, but so far it has not happened and "we are still expecting reasonable growth out of the U.K. market next year."
Pierre Tessier, a spokesman for Montreal-based air carrier and tourism operator Transat A.T. Inc., said the pound still goes further in Canada than it does in the United States, where the cost of holidays is soaring for British visitors.
The flip side of the Canada/U.K. travel market is that it is now cheaper for Canadians to travel to Britain. On top of that, there has been downward pressure on flight costs because of increased competition and capacity. This year WestJet ramped up its flights to Britain, and now runs non-stop seasonal service from several Canadian cities in addition to its year-round flights from Toronto and Calgary.
Flashback: The pound's mighty history
by Brian Milner
The world's oldest currency still in use traces its origins back to the 8th century, when silver pennies were first introduced by Anglo-Saxon rulers. They became a convenient means of paying troops to fight Viking raiders or hand the money directly to the invaders to stop pillaging their realms.
A penny went a lot further in the old days. Only the richest Britons could amass 240 of them, which weighed precisely one pound. Tens of thousands of pounds ended up in the hands of Danish and other Viking leaders running one of the world's most lucrative extortion rackets.
Minting of the sterling coins was a serious matter. In one of the more unusual measures to discourage counterfeiting and maintain confidence in their value, Henry I ordered the castration of dozens of mint officials in 1124 for shoddy work.
The Bank of England began issuing paper money when it was set up in 1694. Soon after, the first forgery case – for printing 60 fake £100 notes, a huge sum – resulted in a stiff fine. The maximum penalty was soon upgraded to death.
Counterfeiting became a major headache during the Napoleonic Wars, putting lots of fraudulent money into circulation at a time when the money supply was already being juiced to cover soaring military costs. The pound's value plummeted and inflation soared, topping 36 per cent in 1800.
But for much of the rest of the century, Britain's global industrial and military power left the pound unchallenged as the world's strongest currency.
It became the safe haven of choice for foreign investors fretting over the U.S. Civil War, driving the pound to record levels. At its peak in 1864, £1 was equal to almost $10 (U.S.).
The pound didn't cede its role as the world's reserve currency to the greenback until the mid-1920s.