UK expats warned sterling to fall below euro by 2018

Published:  17 Aug at 6 PM
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Worse is yet to come for British state pensioner expats as a major investment bank warns the value of sterling will have crashed to below that of the euro by early 2018.

In an FX Overview note sent out to clients last Friday, analysts at Morgan Stanley predicted the value of the pound sterling is due to fall to below the value of the euro for the first time ever. As a result, the euro will become the strongest of a basket of major currencies, and UK expat pensioners living in Europe will find themselves between the proverbial rock and a financially very hard place.

Over the next few months, sterling is expected to continue its Brexit-generated downward slide, whilst economic recovery in the EU bloc will force the euro higher. The bank’s forecast predicts the euro will move beyond parity with sterling during the first quarter of 2018. By the end of next year, one pound sterling is expected to be worth £0.91.

Another reason for the euro’s strength is that overseas insurance companies and pension funds in jurisdictions such as Japan and Switzerland are planning to increase their net exposure to the euro above the present low levels. At the same time, sterling is forecast to weaken due to increasing political risks as well as low real yields and the UK’s poor economic performance. Globally, the projected total loss to British pensioners overseas could be as high as £9.5 billion per year.

UK state pensioners living in Europe are already stretched financially, having been battling to cope with an average of a 13 per cent drop in the value of sterling against the euro. It’s not just those living in EU member states who’ll be severely affected, as the falling pound will continue to impact British citizens retiring in destinations as far apart as Thailand, Australia and the USA.

Combined with the frozen pension scandal, it’s a double whammy on those without private pensions or considerable savings to fall back on, and may force hundreds of thousands of elderly Britons back to the UK in the near future after their top rate state pensions have dropped from around 7,215 euros a year to 6,185.
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