The pound has been plummeting post-Brexit.
On Monday, the U.K.'s official currency declined after Prime Minister Theresa May briefed Parliament. She reiterated the government's commitment to tightening immigration, free trade and developing relationships with a range of nations, including third-world countries.
But her remarks were also a reminder that U.K. voters may have hurt the British economy with their vote to leave the European Union. Rising inflation due to the falling pound has also been a growing concern.
Currently, the pound is trading at $1.22, which was about 18% lower than the day of the EU referendum.
Here are potential good, bad and ugly outcomes of the falling British pound.
Exports: The U.K. is the world's ninth-largest exporter, and falling currency is good news for exporters because products and services become more attractive in overseas markets.
The CBI Industrial Trends Survey showed that manufacturing exports rose by 8% in the last quarter, the highest since April 2014.
Travel and Tourism: With a falling pound, travel to the U.K. will be comparatively cheaper than when Britain was part of the EU. Britain may see an increase in foreign tourism, particularly as the Christmas period kicks in.
U.K. Firms Abroad: Due to the exchange rate changes, U.K. firms with earnings in dollars will generate higher profits.
Travel for Brits: Travel to the EU and the U.S. will become more expensive for British citizens. Because of inflation, it will be more expensive to purchase energy, food, electrical goods and fuel. U.K. households will have to operate on tighter budgets.
Capital Flows: Because of uncertainty in the current government's negotiation powers, and changes in British trade ties, investors may lose the confidence in investing further in U.K. markets. The loss of capital may further decrease the value of the pound and make it difficult to import raw materials.
Labor: Immigration restrictions may prevent U.K. firms from hiring EU employees. A resulting, potentially smaller pool of skilled labor may limit output in the next few months. According to the CBI survey of 459 manufacturers, "Ultimately, all businesses need greater clarity from the Government on the fundamental issues of skills and barrier-free access to EU markets as soon as possible."
Imports: Imports will suffer, particularly if there is a hard Brexit.
Recently, Microsoft announced a Jan. 1, 2017 price increase that will make its products in the U.K. more expensive. Many other U.S.-based firms with strong business ties with the U.K. may follow.
Foreign Workers in the U.K.: The purchasing power of foreign workers in the U.K. (who are paid in sterling) will feel the hit from both sides: a falling pound and rising inflation. EU workers' rights also remain ambiguous. U.K. Home Secretary Amber Rudd at the Conservative party conference recently announced that the firms that employed non-U.K. nationals will have to list their employees.
According to Bloomberg, Rudd said, "The test should ensure people coming here are filling gaps in the labor market, not taking jobs British people could do."
Inflation: The impact of the British pound will be gradual and significant. According to the Office for National Statistics, the Consumer Prices Index (CPI) rose by 1% through September, compared with a 0.6% rise in the year to August. With exchange-rate adjustments, inflation will rise, which in turn, will adversely affect the general public.
Businesses: According to a report by Euler Hermes, a "hard" Brexit would make 1,400 British companies insolvent owing to falling trade levels and lower consumer confidence.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.