The U.K has a new Government, things appear to be on the up and the country’s confidence and indeed the Pound started to creep up directly following what appeared to be a reasonably solid budget to deal with our current economic situation.
My opinion on exactly what may happen going forward is constantly changing in line with data releases and different economic circumstances but below I have outlined a few factors that back up my current opinion that over the next few months the Pound may stay reasonably stable if not push up slightly as the mention of an increase in interest rates gathers more ground, however a little further down the line we may have once again a really rocky time.
An interest rate hike generally leads to positive movement for the currency concerned and a drop in rates generally has a negative effect.
The U.K is currently in 1.46 Trillion of debt – This alone is a serious problem and will take years and years of cuts and extra taxes to get this even close to acceptable again.
We are currently slowly lifting out of a recession and generally consumer confidence should be rising when an economy is on the way out of recession however in this case we are starting to see the opposite as people have had so much extra money to spend – mainly due to low interest rates and lower mortgage payments and now with the potential of rates going up towards the end of the year, higher VAT at the start of 2011 and huge job cuts in the public sector many residents in the U.K are becoming increasingly worried.
Over the past 20 years interest rates have averaged our at around 6% – just how much will this increase the monthly payments on your mortgage??? Not good news!
On top of the the VAT hike will lead to a rise in petrol prices and indeed this leads to higher food costs and inflation in general, everything will cost a lot more yet most people will be geting a lot less so I can forsee some extremely hairy times ahead for the U.K and the Pound throughout 2011, there may be a lot of defaults on mortgages and there is every chance unemployment may reach new highs again.
If you are considering purchasing abroad in the next two years there are options available to you, by means of a forward contract you can book out a rate for anything up to two years by merely sending over a small deposit (generally around 10%).
Obviously anything can happen in 2 years on the currency markets however if you are planning to emigrate why take the risk that your dream may just slip out of budget by the time you are ready to move on from the U.K?? This happened to dozens of my clients a few years back when we nearly hit parity – would you be able to find an extra 15% on a €220,000 property purchase? That is over £32,000!!!!!
We are here to help, we cannot advise you however we can give our personal opinion based on years of market knowledge along with keeping you up to date with timely market updates.
If you are buying a property abroad, have business transactions to carry out or need to get money overseas for any other reason and want the best exchange rates, just fill in the form on the right hand side and one of the experienced traders that write on this blog will be in touch shortly.