BREXIT

British expats with sterling incomes feeling the pinch

by Ray Clancy on January 10, 2017

British expats with incomes in sterling are feeling the pinch but the weakened pound is good news for those earning in a foreign currency, according to new research.

Greater economic uncertainty has contributed to the pound declining in value against the majority of major currencies in the past year with Brexit also affecting its value.

010917-pounds-1680568Over the past 12 months, the pound has fallen in value to varying degrees against 56 of the 60 currencies analysed in the research by Lloyds Private Banking.

This followed a good year for the pound in 2015 when sterling gained in value against more than three quarters of the currencies surveyed. However, overall the pound has fallen by 11% against a trade weighted basket of currencies over the past two years.

The pound lost at least a fifth of its value against nine major currencies. The biggest declines were against the Brazilian real with a drop of 28.4%, down 28% against the Russian rouble and down 27.9% against the Icelandic krona.

The Brazilian real was notably one of the currencies the pound rose most against in 2015 so in effect it is largely unchanged against the Brazilian real compared to two years’ ago.

‘Many British expats will be feeling the pinch. Those with incomes in Sterling, such as pensioners, are getting fewer pounds when converting their money,’ said Peter Reid, expatriate banking director at Lloyds Private Banking.

‘However, on the other end of the bargain, British expats living and working abroad and earning in foreign currencies are now getting more pounds for their money and they are seeing their spending power surge when they head back to the UK,’ he pointed out.

The pound made significant gains against just two currencies during 2016, up 105.8% on the Egyptian pound and up 23% on the Mozambique metical. The rise against the Egyptian currency largely resulted from the Egyptian Government’s decision to float its currency in November. This was part of a number of reforms aimed at strengthening confidence in the Egyptian economy.

Sterling is largely unchanged compared with a year ago against the Turkish lira, up a negligible 0.3%, flat on the Danish krone and down 0.2% on the Mexican peso.

But when it comes to the world’s major economies the pound lost value against all but one of the currencies of the G20 group of economies in 2016. The sole exception was the Turkish lira.

The pound fell by 17% against the US dollar over the year, from $1.49 to $1.24, taking the pound to its lowest year end level against the dollar since 1984 and fell by 13.3% against the euro as the euro-zone economy continued to struggle to gather pace with the European Central Bank (ECB) easing monetary policy further in 2016.

The pound decreased in value by 11% against the Chinese renminbi as mounting concerns about the sustainability of the build-up in debt in China and doubts about the economy’s ability to maintain recent growth rates limited the pound’s losses against the Chinese currency.

The relative performance of sterling in the six months before and six after the EU referendum vote followed similar pattern. Sterling declined in value against 54 of the 60 currencies analysed in the six month period up to day of the referendum and fell the six months following the referendum against 51 currencies.

Sterling has actually gained in value against five currencies since the vote to leave having lost ground in the previous six months. Over the six months it was up 12.6% on the Turkish lira having fallen by 8.2%, up 9.1% on the Japanese yen having fallen 23.1%, up 2.8% on the Malaysian ringgit and the Swedish krona having fallen 12.8% and 9.9% respectively and up 2.7% on the Uzbek som after falling by 3.3%.

Against several other currencies, sterling has fallen only slightly since the referendum on 24 June last year. They include the Philippine peso and the Ukraine hryvnia, down 0.2% against both, down 0.4% on the Croatian kuna, the Singapore dollar and the Argentine peso and down 0.6% on the euro.

On the other hand, the pound’s decline has accelerated against the South African rand with a fall of 14.9%, a fall of 14.8% on the Icelandic krona and down 13.9% on the Zambian kwacha during the same period.

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