Second home owners benefit from a falling pound

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The collapse of sterling against the euro will hit people going on holiday to the eurozone but it will benefit those with second homes abroad that need to bring euros back into the UK.

Sterling fell sharply against all major currencies on Friday to hit a five month low against the euro of €1.0946 after Mervyn King the governor of the Bank of England said that a fall in the exchange rate would help to balance the UK economy by giving exports a lift.

“The one thing everyone is agreeing on is that sterling is likely to fall fast and far,” said Peter S Ellis, chief executive officer at Foreign Currency Direct. “While this is bad news for most of the UK, those doing business overseas, or people with second homes looking to convert their Euros back to Pounds can get the best rates around.”

He says that the view that sterling will collapse is “supported by the Bank of England who state in the current quarterly bulletin that the UK has been running in deficit for some time which has only been possible due to foreign investment in the UK. This is now suddenly drying up.”

He added that concerns over the sustainability of the level of public debt, which has increased over 20 per cent in a year, and now stands at £804bn, are weighing heavily on the value of sterling.

“Servicing the national debt now equates to £1 of every £4 spent by Gordon Brown’s government and 57.5 per cent of the country’s annual output,” he said.

The pound was down around 0.8 per cent against the dollar, with a day low of $1.6171. Against the Australian dollar, sterling fell 1.3 per cent, hitting a day low of 1.8503. It also fell against the New Zealand dollar by 1.3 per cent, slumping to a day low of 2.2358.

Duncan Higgins, senior analyst at Caxton FX, said: ”As a chiefly importing nation, Britain’s current account has become accustomed to showing a deficit, which has now been proven to be an unsustainable course for the UK economy.

”Mr King’s comments underline the need to focus more on exports. In order to achieve this, a weak pound is necessary to assure the competitiveness of those exports in the global markets, so clearly Mr King has no desire to see the pound gain value.”

Higgins predicted that the pound would continue to decline steadily over the short term, heading towards parity against the euro by the end of October.

Peter Ellis also believes this. “As confidence returns to the rest of the world economy, this position is reversing, investors are once again confident enough to move to riskier currencies. This may see the pound dip against a basket of currencies over coming months.”

Published in the Financial Times


Written by Magda M Ali

January 1, 2010 at 11:50 pm

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