Where will Exchange Rates Go for Expats in the Coming Months?

October 31, 2017 ProACT Sam Orgill

Monday Money Blog Examines the potential impact of a Rise in UK Interest Rates before the November 2017 Budget, and

Reveals 6 Benefits for Expats from Higher UK Exchange Rates v Euro

ProACT Sam Orgill Tax Saving Expat Experts

The EU Brexit Vote has hit British Expats Living and Working in the EU hard. The day after the Brexit vote on 24/6/2016 Sterling fell sharply from £1=Euro1.30 so by the end of October 2017 the Pound is trading at £1.00 = Euro 1.13 , a mighty fall of nearly 15% in 16 months.

This affects how many Euros to spend have UK expats living in euro land, or the £ Sterling back taken home after the sale of Euroland overseas property. Here we llok and the background and reveal:-

6 Benefits for Expats from Higher UK Exchange Rates v Euro

Why is the £Pound so low against the Euro?

The Euro has strengthened in 2017 buoyed by ‘Quantitative easing’ by the European central bank. A central bank who can control the 19 EURO countries directly (out of 27 EU Member states plus UK). This pumps ‘cash’ into the economies of Euro and primes the economy for growth. Something the Europeans did many years after the USA and UK in 2009. In October 2017 the European Central bank confirmed this would continue until at least September 2018 and that interest rates won’t increase.

UK Inflation Up Growth Down

Meanwhile the UK has seen a gradual inflation squeeze due to the impact of … the exchange rate fall leading to high import costs for consumers and manufacturers. The point has come that UK policy makers must address the situation if they want to avoid higher inflation and economic turmoil that would result. That workers will start to agitate for higher pay to cover living costs, businesses will close, and recession will follow. The UK economic growth falls.

New Government New Budget

The new 2017 UK government has changed the historic way it runs its budget. The UK BUDGET is now held in November from 2017. This allows the UK Chancellor to announce Tax changes to be applied and enforce from April 2018, 6 months later not the 1 year later as seen in recent years.

November’s budget will be the defining budget for the year leading up to EU Brexit in March 2019 as well as setting the tone for the whole of the 5 year term of this new minority governments term. Therein lies the rub…

The new government will hope to last the 5 years possible for their elected term. Perceived wisdom is the Chancellor should have a 5 year plan to ensure that the economy is doing well prior to the next election – allowing them a better chance of re-election.

In year 1 that means pain, pain the electorate will forget in 4 years’ time and can be blamed on the EU baddies?

Good Pain Bad Pain

If you are in the UK tax increases and higher interest rates are good pain for the economy. They should drive increases in productivity and innovation that leads to long term higher growth. The bad pain is mortgage, credit card and loan expenses rise, taking spending power out of the economy in the short term, not good for consumers spending power, but in theory inflation will in turn fall. Falling inflation is good for the UK government because indexed linked public sector wages and state pensions increase at a lower rate and allow lower taxes. Everyone can Stay Calm.

Higher interest rates are a ‘get out’ for the government: they impact the economy like rising taxes, but they are not taxes, the politicians blame the bank not the tax man. UK interest rates could have risen a few times this year, it seems , they have been held back to increase as November starts as the first step in implementing the new tax and money regime for the 18 months leading up to Brexit.

For Expats higher interest rates are good pain. If £ Sterling interest rates are higher, then the currency becomes more attractive to foreign investors, ahead of lower Euro interest rates, meaning UK sterling could strengthen on international markets and start to give Expats back what they have lost

It is widely predicted UK interest rates will rise by 0.5% in Early November. How might this affect expats? The £ Sterling could strengthen against the Euro and Dollar as a result. How will this affect Expats Living and Working Abroad?

6 Benefits for Expats from Higher UK Exchange Rates v Euro

1. Give greater spending power from UK pension and rental income

2. Rental Income converted to Euro will increase the net Euro income

3. Shopping in the Euroland will be more cheaper for Brits

4. Overseas Holidays will be cheaper for Brits encouraging more to book overseas holidays and rentals in 2018

5. Taking Pension Freedom to draw lump sum and convert to Euro will generate more Euros to spend

6. Euro based Overseas Property and Business Investment will cost less £GBP for Overseas Investors

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EU Brexit for Expats could impact in many area – we can help and guide you all the way.

www.proactpartnership.com/blog/why-is-gbp-so-low-against-the-euro

www.proactpartnership.com/blog/eu-brexit-for-expats-exchange-rates-can-go-down-as-well-as-up

Sam Orgill

ProACT Partnership - Tax Saving Expat Experts

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