ASK THE EXPERTS Ask the expert: Currency
UK economy brighter - but will fi scal policy weaken the pound?
By Alastair Archbold, Senior FX Broker, Foremost Currency, (
foremostcurrencygroup.co.uk) I
n my last column – penned in March - there were fears that the UK would enter recession for the third time, however fi gures released
since have showed growth, and as a result the pound has risen against the euro and other currencies. T e better growth fi gures are only part of
the story however. T e UK’s services sector, which accounts for around 75 per cent of the economy, grew at its fastest rate since March 2012, and other recent data has shown that the UK’s construction sector has returned to growth aſt er six months of contraction, helped by an increase in the level of house-building. All of this is welcome news for Chancellor
George Osborne. It’s also good news for those seeking to purchase property abroad, as the increase in rates in the last three months means a €300,000 property is now £10,000 cheaper than it was earlier in the year.
Cyprus woes weaken the euro T e problems in Cyprus have also pushed GBP/EUR rates higher. T e country debts far exceed economic output, and as a result
the European Central Bank (ECB) decided on a controversial raid on bank deposits, in return for a bailout. Although there seems little immediate
prospect of an expulsion of a state from the eurozone, it surely remains a possibility. Countries such as Greece, Cyprus,
Spain and Portugal face extreme challenges, with harsh austerity regimes and high unemployment. T ese issues are not likely to be resolved soon, and so for the time being exchange rates will likely be driven by developments in the UK.
New Bank of England Governor, QE - and weaker sterling? T e Bank of England has kept its stimulus programme of quantitative easing (QE) unchanged and also held interest rates at 0.5 per cent at its recent meeting, however there could be a change in policy when the new Bank governor, Mark Carney, arrives in July. T e BoE has been split in recent months over whether to increase QE from its current level of £375bn. Recent economic data has painted a
mixed picture of the UK economy. Offi cial fi gures showed retail sales fell in April, while unemployment rose in the three months to
The pound against the euro over three months
1.1800 1.1700 1.1600 1.1500
1st April 2013 1st May 2013 1st June 2013
March. Last month the Bank upgraded its own forecast for growth, and recent data confi rmed that the UK has avoided a triple- dip recession, growing by 0.3 per cent in the fi rst quarter of the year. Due to the mixed data, three of the nine MPC members have voted for more QE at recent meetings. Will Mr Carney pursue more QE which could weaken the pound signifi cantly? Recent comments have hinted at a push
for radical QE action in the UK, where the economy has been stagnant for two years. Some reports have suggested Mr Carney will try to devalue the pound by as much as 15 per cent. T is of course would mean the cost of buying overseas could increase. But while a high exchange rate is attractive
for UK buyers abroad, it’s not helpful for returning the UK’s economy to growth. It makes our exports more expensive, and 50 per cent of UK exports go to the eurozone. A weaker pound would make exports more attractive and aid economic growth.
How to protect against rates fl uctuating exchange rates If you are purchasing overseas, budgeting and keeping costs under control is paramount. To do this you can fi x today’s exchange rates for up to two years with a Forward Contract, and only lodge 10 per cent of the total you want to convert initially. T is allows you to budget eff ectively for your purchase, while also protecting you against rates falling away. It’s a very popular type of contract in today’s climate of economic uncertainty. §
Contact Foremost on 01442 892066 and quote A Place in the Sun
For more currency advice visit
aplaceinthesun.com | 139
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