Back in 2008 when sterling was a currency to be reckoned with and before Lehman Brothers changed the trajectory of all the world’s major currencies, Carney would have only got 49p.
So as an expat himself, it would be nice to think that Mr Carney will be mindful of currency exchange swings as he embarks on his role of steering sterling’s fortunes for the next five years. Granted it’s a huge task and one that puts the UK economy first and foremost at the heart of his agenda. But Carney’s positioning of the UK base rate will also have an immediate impact internationally with an inevitable knock-on effect on the fortunes of the vast majority of five and half million British expats living overseas.
So while we wait to see how he shapes up, pundits are already taking bets on the direction of UK interest rates with some forecasting a rate rise while others predict a fall below the static 0.5%. For IFAs with an expatriate clientele the focus will be on the causal effects of Carney’s decisions on how sterling fares on the foreign exchange markets.
At least we will have some warning. George Osborne has charged his new appointee to provide ‘forward guidance’ within his first few weeks of office. This means the Bank of England’s Monetary Policy Committee will declare its collective hand by indicating the movement (or lack of) interest rates way beyond the actual votes which will continue to occur at each monthly meeting. Such guidance is seen to engender a market mood of certainty, enabling lenders to be confident when oiling the wheels of commerce with reasonably priced credit.
However, while the home market will no doubt welcome greater access to cheap cash, current talk of Carney being a fan of quantitative easing could signal a further fall in the value of sterling. This would leave expats who are dependent on a sterling income seriously short of spending power at a time when they are already struggling. In particular, those expats who’ve retired abroad and are drawing a UK sourced pension.
Euro-zone based Brits were pocketing €1.48 for each quid seven years ago – today they’re lucky to find €1.16 jangling in their pockets. And Brits soaking up the good life on the other side of the pond were coining two dollars for every pound – a rate that has seemed unreal ever since.
Expats have already lost nearly a quarter of their income since the crash of 2008 which makes for a pretty miserable retirement when most expatriate locations continue to experience rising living costs and local taxes. In days gone by, the effects of a lower income in sterling could be outweighed by high savings rates or a beneficial exchange rate on selling property to return home. But those days are gone as low or non-existent savings rates and depressed property prices have left many expats stuck between a rock and a hard place.
So come on Mr Carney, as an expat yourself, you now have first-hand experience of how exchange rates can and do make a difference.
David Howell is chief executive of Guardian Wealth Management
Click here to read a recent analysis of the ‘ticking retirement time-bomb’ by Guardian regional director Gavin Pluck