SO far, 2017 has been a topsy-turvy year for the British pound and it continues to be the focus of attention for many investors concerned about the UK economy’s fortunes post-Brexit.

While we cannot comment directly on the politics of Brexit, we can draw conclusions about the financial and economic impact that the political machinations will have.

Investors were well-prepared for the submission of Article 50 but were eagerly anticipating the tone of the Prime Minister’s accompanying statement to Parliament.

While the pound has suffered since the referendum last June, the more conciliatory tone in Theresa May’s statement gave some comfort.

The pound rallied to an intra-day high against the euro and the dollar as she emphasised the UK was not turning its back on Europe or rejecting its values.

However, in her letter to Donald Tusk, president of the EU, Mrs May said “the United Kingdom does not seek membership of the single market: we understand and respect your position that the four freedoms of the single market are indivisible and there can be no 'cherry picking'."

While investors have been conditioned to expect this outcome (with the potential that tariffs will be imposed on UK exports to the single market and the UK financial services industry penalised for being outside the EU), it could be worth holding back a little on negative speculation: good negotiating practice demands that the UK Government and its European trading partners strike an uncompromising early tone.

This is not necessarily reflective of the end position that either side expects to reach.

In Brewin Dolphin’s view, the degree of negativity surrounding the UK pound has been excessive.

Better economic performance, or a more constructive resolution of the negotiations, would enable it to recover.

A stronger pound can weigh on returns as it means that the high volume of foreign revenues UK companies earn are worth less in sterling.

Even so, parts of the market will benefit, such as retailers and real estate, and overall it makes it easier for UK equities to outperform their overseas peers.

It would help smaller businesses, which tend to be domestically focused, to outperform larger companies that have benefitted from the fall in the pound inflating their overseas sales.

Markets have a lot to digest apart from the official start to the process of leaving the EU.

Markets are also ruminating on the prospect of a second independence referendum in Scotland and political risks across Europe.

However, more mundane issues are also crucial, such as the UK’s economic performance.

The UK has performed better than expected following the decision to leave the EU but financial markets, which represent the collective view of investors, remain downbeat on the UK’s economic prospects.

That said, there is a misconception that, compared to the UK, the Europeans do not have as much to lose from failing Brexit negotiations.

This approach assumes there are winners and losers from trade (depending whether you are the seller or the buyer), however, the reality is that trade only ever takes place if it is in both parties interests.

There is a reasonable chance that both parties would see this is the case, and work towards a deal.

It is possible that a protectionist approach would be taken for political reasons but doing so would be mutually harmful.

Despite this, if the worst were to happen, the situation could be dire for the UK.

The UK spends more than it earns in international terms, and must attract foreign capital every year to maintain the current level of economic activity. Failure to offer investment opportunities would mean a further decline in the pound, and a decrease in both output and private spending.

We think this is unlikely.

Developed economies like the UK are unlikely to suffer from a rapid collapse in confidence.

It might look set to be a rough ride at times, but investors don’t need to jump ship.

We have recently seen good employment growth numbers and, despite the UK having one of the highest employment rates (the share of the population with jobs) in the developed world (far higher than the US for example), wages have remained subdued.

We expect to see consumer spending slow as a result of higher inflation over the coming months.