As we approach the third month of lockdown in the UK, the pound has weakened almost 3% against the euro since this time last week. The most obvious cause was an interview with Andy Haldane, chief economist at the Bank of England, who said that the Bank is looking at reducing interest rates from the current 0.1% to below 0. “How could we not be?” he said.
This means that banks would have to pay to keep their money at the Bank of England, the idea being that they are more likely to lend it and hence stimulate the economy. The European Central Bank and the central bank in Japan already have negative rates.
The risk in the policy is that there isn’t much of an economy to stimulate right now and it might have little effect.
Sterling’s fall this morning follows Friday’s bad news from the UK-EU Brexit negotiations, where both sides blamed the other for lack of progress. Although the UK has to ask for an extension to the transition period (currently set to end on 31 December) at the end of June, if it fails to do so we are not inevitably then set on course for no deal at the end of the year. It would be more likely, however.
The Johnson government’s success in winning the election last December – and getting Brexit through – is clearly giving itself confidence that the UK can achieve what it wants in time for a deal this year.
On the Covid front, European flights appear more likely to resume before the heights of summer. Ryanair are bullish about restarting in July and where Michael O’Leary goes, other airlines tend to follow. His evisceration of the UK government’s airline quarantine plans on Radio 4 this morning was exhilarating, whether you agreed with him or not. Italy clearly takes his view, as it aims to restart flights next month.
Given the government’s determination to get the strictest rules imposed on EU immigration by the end of the year, if you aim to retire or move to an EU country in the next year or two anyway, why would you not do that before the end of the transition period and hence keep all your current EU rights?
It seems a no-brainer, when we are all learning how to work from home whether ‘home’ is in Croydon or the Costa Blanca. We are undoubtedly looking at a buyers’ market for property this summer and autumn, and you can always rent first if you don’t immediately find the perfect home, get your EU residency, then buy later.
The pound will come under more pressure over the next few weeks, and for the last few years has spent summer considerably lower than today’s rate. So to lock in today’s rate with a forward contract for this difficult year ahead do call your trader on 020 8108 5337.
