Global Markets Daily: Sterling Valuation and the Shadow of Brexit

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Global Markets Daily: Sterling Valuation and the Shadow of Brexit

Economics Research

18 June 2026 | 10:43PM BST

n After a strong recovery in real terms in the decade following the Brexit Stuart Jenkins

+44(20)7051-4700 |

referendum, Sterling is now the most overvalued G10 currency. stuart.jenkins@gs.com

Goldman Sachs International

n Some degree of post-Brexit recovery in Sterling was warranted from a cyclical

perspective under our GSFEER model, with the initial sharp GBP sell-off likely

facilitating the stabilisation in the UK’s current account, which has remained

close to equilibrium levels since the late 2010s.

n But from a structural perspective under our GSDEER model, Sterling’s recovery

has likely overshot fundamentals. That is particularly true in the context of

Brexit’s likely long-run impact on UK macro variables. Translating our economists’

previous estimates for the cumulative post-2016 drag on UK real GDP versus a

no-Brexit ‘Doppelgänger’, and estimates in the academic literature on the impact

on inflation and productivity, we estimate a Brexit impact on Sterling fair value on

the order of 6%, albeit with meaningful error bands.

n The extent of Sterling’s current overvaluation depends on the reference point.

Longer-run (30-year) real trade-weighted Sterling averages that load less heavily

on the post-Brexit period are roughly in-line with current levels. But the range of

our valuation metrics (and GSDEER in particular) points to some degree of

overvaluation, which we think constitutes a meaningful medium-term headwind

for the currency.

n Meanwhile, a readjustment to closer UK-EU trade ties has been a growing feature

of recent UK political discussions. Such an outcome would likely see a partial