The pound continues to fall against the dollar, shopping and utilities get more expensive and trips abroad are hit with a double whammy of rising fuel prices affecting airfares and spending money.
But it’s not all doom and gloom. Taking global economic factors into account, there may be some good news for savvy long-term investors according to top IFA Stephen Baxter.
“In an environment of weak global growth and low inflation, a weak pound may not be such a bad thing,” said Stephen, Joint Managing Director at Yorkshire-based Robertson Baxter.
“The weak pound means that exporters are happy as their goods become cheaper in overseas markets and that makes the UK attractive to investors.
“FTSE 100 companies derive 75% of their earnings overseas, so a falling pound gives them a currency windfall. For the FTSE 250, 50% of earnings are from overseas.
“This has led to the FTSE 100 rising strongly, which benefits direct investors, as well as those with pension savings,” added Stephen, whose firm manages the financial future of very high net worth individuals, trustees and charities across the region.
The economic outlook is not so good for non-investors whose cost of living is expected to increase due to higher import, energy and utility costs.
The exchange rate is a barometer of the value, size and potential for growth of the UK economy against other markets such as Europe, the US and China. Brexit has led to the gentle devaluation which may continue as the rest of the world’s economies, particularly the US, get stronger.
“We are seeing interest rate diversions,” added Stephen. “The next move in the US is expected to be upwards, which leads to a stronger dollar and the economic outlook is perceived to be good. In the UK on the other hand the next move is expected to be downwards due to uncertainty surrounding the economy, leading to a weaker currency.
“This means the pound buys less, so imports are more expensive, which affects us all in terms of energy, fuel and food imports leading to import inflation.
“It is estimated that for every 10% devaluation, there is a 2-3% rise in inflation. Although this can take 3 to 6 months to be seen on the high street. If wages are rising slower than this, then people feel poorer which is not what the Government wants to see.”
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