What is Unsettled Pound – Explained

It is well-known that the British Pound has been weakening steadily against other currencies since the Brexit in 2016. The reason behind this was the uncertainty building up due to Brexit itself. The UK’s decision to leave the European Union created a large economic and political instability, causing investors to lose confidence in the strength of the Pound. As a result, the value of the Pound dropped sharply.

Recently the Pound has shown some struggle due to several reasons.

• Interest Rates: Uncertainty about future interest rate decisions by the Bank of England (BoE) affects the Pound. Higher interest rates attract foreign investment mostly, strengthening the currency. On the other hand, lower rates can weaken it.
• Inflation Levels: High inflation drops down the purchasing power of a currency. If inflation in the UK is higher than in other countries, the pound becomes less valuable.
• Consumer Behavior and Investment Decisions: Uncertainty about the economic outlook affects consumer spending and business investment. When people are unsure about the future, they tend to save more and spend less, slowing economic growth and weakening the currency.
• Government Policies: The current government has not done much to ease the tension and stabilize the Pound. Political instability and unclear policy directions further undermine confidence in the currency.

Recent Developments and Government Policies

One topic that took all attention recently was the tax cuts and increased public spending announced by the Conservative government under Liz Truss. These policies have boosted the price pressures and have created stress on markets. The UK government will be announcing a clear policy statement and it might help mitigate these effects.

The good news is the Pound has shown a rebound since former Chancellor Rishi Sunak stepped in as the new Prime Minister. Mr. Sunak’s appointment appears to have reversed all the post-budget losses.

Economic Decisions and Uncertainty

Many economic decisions are based on expected outcomes, and their effects cannot be predicted when there is uncertainty. Higher inflation, higher interest rates, lower savings rates, lower returns on investments, and more expensive imports have led the UK to a service-based economy.

How Does a Weak Pound Affect the Travellers?

• Reconsider Travel Plans: If you’re planning to travel abroad, you might want to reconsider your plans. A weak Pound makes everything more expensive for Britons traveling overseas. This means that your holiday budget will need to be adjusted to account for higher costs in foreign countries.
• Budget cuts: If you decide to travel, look for cheaper alternatives, such as renting accommodation instead of staying in hotels. This can help you save money without compromising on your travel experience. Additionally, consider dining at local eateries instead of expensive restaurants to cut down on food expenses.
• Travel Off-Peak: Avoid traveling during peak periods and find alternative ways to get around to save money. Off-peak travel can offer significant savings on flights and accommodation. Moreover, exploring less popular tourist attractions can provide a more unique and affordable travel experience.
• Get the Best Exchange Rates: Search well for the best exchange rates when dealing with foreign currencies. Different providers offer varying rates, so it’s a must to compare and choose the most favorable one. Using online comparison tools can help you find the best deals. When exchanging money abroad, avoid currency exchange booths at airports as they often offer less favorable rates.

When British travelers use cash machines or pay at restaurants or hotels abroad, a weaker Pound means they are likely to spend more on foreign currencies. In short, a weaker currency makes everything more expensive. The silver lining is that many countries may offer better deals because their tourism industry benefits from overseas visitors like yourself.

Impact on Migrants' Remittances

A weak Pound means that UK migrants sending money home need to send more to meet their needs back home. This can be particularly problematic for those sending large amounts of money abroad. For example, if an exchange rate drops from 1 Pound = 2 Dollars to 1 Pound = 1.5 Dollars, you won’t be able to buy as much with £1000 as you could before, which means your family won’t get as much as they used to. This will have a roll-on effect if they primarily depend on your income.

• Increased Financial Burden: Migrants will need to send more money to support their families back home, which can weaken their finances. This can be especially challenging for those with tight budgets.
• Impact on Family Needs: Families relying on remittances from the UK may face difficulties in meeting their needs. Education, healthcare, and daily expenses may become harder to afford.
• Economic Impact: Reduced purchasing power means less money spent in the local economy, which can affect businesses and economic growth in the migrants' home countries.

On the Brighter Side

• Business Investment: A low exchange rate will always encourage business investment in the UK as the costs are much lower than other major currency equivalents. This investment will eventually boost the UK economy. Businesses from other countries may find it more attractive to invest in the UK, creating jobs and stimulating economic growth.
• Tourism Industry: Industries like UK tourism will benefit as the weakened Pound will make the UK a more attractive destination. Tourists from countries with stronger currencies will find it more affordable to visit the UK, boosting tourism revenue. This can have a positive effect on related sectors such as hospitality, retail, and transportation.
• Savings Opportunities: For those looking to save this will be a great time, as cash deposits will eventually pick up, although they are still below inflation. Higher interest rates can benefit savers, providing better returns on their deposits.

The Role of Global Events

Global events also play a significant role in influencing the Pound’s value. For instance, geopolitical tensions, trade negotiations, and economic data from major economies like the United States can impact investor sentiment and the value of the Pound. Keeping an eye on these global factors is important for understanding the broader context of the Pound’s movements.

The unsettled state of the Pound can bring both challenges and opportunities. The UK has a history of resilience and adaptability. Despite the current challenges, there is hope that the Pound will stabilize, and the economy will continue to grow. Either you are a citizen. Migrant, student, or someone planning to visit the UK understanding the factors influencing the Pound and implementing effective strategies can help you make the most of the current situation.