Global events determine global exchange rates. That’s why every week at theCurrent we bring you the world’s biggest business stories. This week: Brexit, higher CPP payments, and a Canadian discount airline launches.
The biggest story last week was Brexit. On June 23 the UK voted to leave the European Union in a referendum. Despite early polling suggesting that Britain would vote to stay, once the results began rolling in, it became clear that the country was heading in the opposite direction. Once all the votes were tallied, the ‘leave’ campaign won with about 52% of the vote. Enough to put it over the straight majority criteria. Wales and most of England voted strongly in favour of leaving the EU, while London, Scotland and Northern Ireland all voted to remain. Along with geography, age was another crucial factor. Older voters heavily favoured leave, while voters under 30 mostly voted to remain.
Prime minister David Cameron who called the referendum, but campaigned strongly to remain, has resigned, leaving the ruling Conservative Party until October to find a new leader. Boris Johnson, the former mayor of London and leader of the ‘leave’ campaign, is likely to stake his claim. However as the facts emerge, and some of Johnson’s claims prove to be untrue, his popularity is already waning – and of course he is very unpopular with those that voted to remain.
It may still take until at least 2020 for the exit process to be completed, as invoking Article 50 is itself a two year process. Nicola Sturgeon, leader of the Scottish National Party has already hinted that Scotland could seek a referendum of its own to leave the UK, and recently also suggested that the Scottish Parliament could try to block the UK from leaving the EU (although this remains unlikely).
Just how costly Brexit will be in the long run is yet to be seen. Many European leaders are calling on both the UK and EU to make the process as swift and painless as possible to calm the markets and build a careful plan for future growth. Johnson, however has said that he would like Britain to take its time. Such a move could allow the UK to use Brexit as a bargaining chip in negotiating future deals with the EU.
GBP falls, USD up
Following Brexit, the British pound fell almost 10% against the US dollar and 5.5% against the Canadian dollar, while the Canadian dollar fell almost 3% against the US dollar. The FTSE 100 dropped almost 10%. Global markets performed poorly as the Brexit aftershock reverberated around the world. Commodity prices also fell, as global economic growth forecasts were revised down. Justin Trudeau, however, said that Canada was strongly positioned to weather the storm.
Governor of the Bank of England Mark Carney said that the BoE had made contingency plans and would be able to deal with the immediate fallout. Longer term, Britain could remain as part of the European Economic Area despite not being part of the EU – of course this would mean that the UK would have to abide by EU rules, without the ability to contribute input.
Canadians will soon have to start paying higher premiums from workers and employers to fund their Canadian Pensions Plans. The move was announced last week but won’t take effect until 2019. Many are hailing it as a boost for retirement savings, while other argue it hurts Canadian business.
NewLeaf, a Winnipeg-based travel company promising rock bottom prices, will launch in late July – about 5 months after it had originally planned to launch.
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