How does the falling pound affect me?
The pound went into freefall after Chancellor Kwasi Kwarteng’s Mini Budget, with news of a raft of tax cuts at a time of soaring inflation and rising interest rates sending chills through the markets. It has now largely recovered those losses against the dollar, but it’s still relatively week in historical terms.
For many, talk of financial markets, exchange rates and the value of the currency can seem very remote and abstract. But these things have a big impact on our day-to-day lives.
Here are just a few ways in which a weak pound could affect your personal finances.
Fresh pressure on energy costs
Oil and gas prices are based on the dollar, so a fall in the value of the pound against that currency could push up energy bills for households that are already struggling, to the point where significant government intervention has been needed. Drivers too could see a surge in costs, as it might cost more to fill up your car with petrol.
Higher mortgage repayments
A fall in the value of the pound is likely to drive inflation, which in turn would prompt the Bank of England to further increase interest rates.
Banks would then be likely to pass these higher rates on to customers, which could lead to two million people on tracker or variable rate mortgages having to pay more each month.
Those on fixed rate mortgages, many of whom will see their deals end in the coming months, could also be in for higher costs when they take out a new mortgage.
Higher loan repayments
Higher interest rates mean the cost of borrowing is higher, so if the base rate continues to go up, you could face higher repayment fees on other loans, not just mortgages, such as bank loans and credit cards.
More expensive to buy goods from overseas
If the pound has fallen in value against other currencies, the price of the goods we import, such as clothes and food, will go up. Much of the technology we use, like smartphones, is manufactured abroad too, so British consumers could find they become more expensive in the coming weeks and months.
More expensive trips abroad
We’re probably most conscious of the value of our currency when we’re buying holiday currency. But next time you go abroad and purchase your travel money, you’ll get fewer dollars and euros for each pound you swap. If your money doesn’t go as far as it once did, your trip abroad will therefore inevitably be more expensive.
And that’s before you think about increased fuel costs, which could push up the cost of flying to your holiday destination.
If you need advice and support on how to manage your money during this volatile period, feel free to get in touch or sign up to our monthly newsletter to keep your finger on the pulse. We’re happy to talk about your situation and our independent advisers offer free reviews with no obligation.
Sam Murphy – 6th October 2022