The UK’s Newest Expat – Exchange Rates & The Downstream Impact on Expat Life
As the new Governor of the Bank of England Mark Carney will know at first hand how Exchange rates impact disposable income.
In contrast looking back to 2008 when sterling was a strong currency to be reckoned with and before the Lehman Brothers changed the direction of all the world’s leading major currencies, Carney would have only got 49p.
So as an expat himself, it would be nice to think that Mr Carney the new Governor of the Bank of England will be mindful of currency exchange fluctuations and swings as he takes on his new role of steering sterling’s fortunes for the next five years.
It’s a huge task ahead of him and one that puts the UK economy first and foremost at the heart of his agenda and his number one top priority. Carney’s positioning of the UK base rate will have an almost immediate impact on the international markets with downstream impacts on the fortunes and lives of the vast majority of the five and half million British expats living overseas.
Whilst there is much debate and interest on how this will shape up in the coming months with a number of pundits already taking bets on the direction of UK interest rates with some forecasting a rate rise while others predict a fall below the static 0.5%.
In a bid to try and provide much more stability and market confidence, at least there will be some advance warning on where this is headed.
This means the Bank of England’s Monetary Policy Committee will declare its collective hand by indicating the movement (or lack of) interest rates way beyond the actual votes which will continue to occur at each monthly meeting.
Whilst the UK market will no doubt welcome greater access to cheaper cash, current talk of Carney being a fan of quantitative easing could signal a further fall in the value of sterling.
This could well leave expats who are dependent on a sterling income seriously short of spending power at a time when they are already struggling. In particular, those expats who’ve retired abroad and are drawing a UK sourced pension.
On reflection over the last 7 years Euro-zone based Brits were pocketing €1.48 for each £1 nearly seven years ago – today they’re lucky to find €1.16.
Whilst Brits soaking up the good life on the other side of the atlantic were gaining nearly two dollars for every pound – a rate that has seemed unreal since.
The reality is Expats have already lost nearly a quarter of their income since the crash of 2008 which makes for a pretty miserable retirement when most expatriate locations continue to experience rising living costs and increasing local taxes.
Whilst in the past the effects of a lower income in sterling could be outweighed by high savings rates or a beneficial exchange rate on selling property to return home.
But those days are long gone as low or non-existent savings rates and further depressed property prices have left many expats in a difficult situation.
So as an expat himself, Mr Carney will have first-hand experience of how exchange rates can and do make a difference.