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Pound slumps as Britons choose to Leave EU

ECA International

The UK people's decision to leave the European Union has certainly upset this blogger, as much because of the human issues involved as economic ones, but more importantly, it has upset the markets too.

Dire warnings of market turmoil and economic catastrophe before the referendum yesterday failed to persuade enough people that it was in their interests to continue with the EU project. Perhaps their hope was that, after an initial plunge, markets would soon right themselves and normality would return, as it always does.

And they could be right.

In the immediate aftermath of the Remain camp's defeat the pound plunged almost 12% and the FTSE 100 Index saw more than GBP120bn wiped off the value of shares. Straightaway, some expatriate staff working in the UK and paid entirely in sterling asked for their pay packages to be reviewed!

However, the pound is already bouncing back. It now sits at GBP1/USD1.39 against the dollar, up notably from the day's low of USD1.32, although still 7.3% down on the high of USD1.50 seen just after midnight, before the results of the vote began to trickle through.

Personally, I suspect the pound's decline is far from over, but then I was fairly confident the UK wouldn't choose to give up on the greatest peace project in history, not to mention the world's biggest single market. Currency and other markets will certainly be volatile over the next few days, weeks and even months, but trying to second-guess them, let alone making major changes to remuneration packages of affected employees before the dust has settled, would be as unwise as it has always been.

Furthermore, if your international staff in the UK are paid at least some of their wages in foreign currency, they will be able to exchange it for more pounds than before, so should be better off for the time being. Later, of course, a weaker pound will make UK imports more expensive, pushing up inflation and at least partly offsetting the gains some expats may have enjoyed from the currency factor.

So, ECA International advises caution. Let the forex markets bounce around and explain to your personnel that reconciliations are always possible (assuming they are in your organisation) after the events. It will only be a matter of time before our next Cost of Living survey takes place in September (with full results due to be published by end-November), which will take account of both exchange rate and inflation movements, ensuring that purchasing power can be maintained. In the meantime, you can always follow the pound's progress online via this blog or Oanda's live charts, and if the UK's currency does keep plunging, interim pay reviews could be an option.

We also wrote a blog post last week to provide some guidance on what Brexit might mean for global mobility, which you may find useful. If you need assistance with any of these issues, please get in touch.

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