May is expected to bring some volatility for the pound which can be a good thing for traders of the currency. The first week of May will be an important one for the pound as on the 6th of May, the Bank of England (BoE) will deliver its monetary policy decision and its quarterly Monetary Policy Report. Investors and analysts are also expecting the Scottish election to be a pound-sensitive event as it could result in a majority for pro-independence parties. In the near term, both events could affect the pound and set the tone for currency trading throughout the last month of Spring.

A hawkish tone from the bank could weigh on the pound

Economists will be closely watching the BoE’s upcoming meeting to understand whether the bank will change its quantitative easing programme by reducing its rate of asset purchases.  This is seen as a necessary measure to provide liquidity to the economy, and it will open the path for raising interest rates in the future. For this reason, if the bank decides to make such a move, markets will be pleasantly surprised, as three months ago the bank was seriously considering pushing interest rates into negative territory.

While such a move is welcomed and appropriate since the economy is recovering, it is still too early, and some economists believe that the bank will not be raising interest rates anytime soon. The BoE is more likely to remain cautious, and this might put some pressure for the pound. While the market expects interest rates to remain unchanged, they are not quite sure about the bank’s intention to reduce quantitative easing. For some analysts, there are concerns about the pandemic and unemployment which could rise following the withdrawal of the government’s support.

Scottish elections

Scotland will be voting for the next Holyrood parliament on 6th of May and political commentators say a strong result for pro-independence parties will inevitably lead to another independence referendum. However, financial analysts do not expect the Scottish elections to have a major impact on GBP. Regardless of the result, most experts do not believe this will immediately lead to an imminent vote for independence, as a second independence referendum is probably years away.

As things stand, it is also unlikely that Prime Minister Boris Johnson’s government will grant consent to hold a second referendum.  While who holds the power to allow a vote could ultimately be tested in the courts, at the same time the probability for an imminent referendum is small. A refusal from Boris Johnson could also further strengthen pro-independence sentiment in Scotland. The possibility of a second independence referendum is not going to go away and will play a key role in the next UK-wide general election in 2024.

Are you Transferring Funds Abroad?

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss these factors in further detail and be kept up to date with the latest market movements ahead of your currency exchange. If you are paying your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your personal or business’ transfer needs.

Plans for buying property may have been postponed for a while due to the Coronavirus lockdown restrictions, but as these begin to ease, Brits’ interest in foreign property has been reignited. Now cities in such European countries as Spain, France, Italy, Portugal and Greece are sought after, as Brits’ love for warm climes and sandy beaches has been rekindled.

Costa del Sol in Andalusia, southern Spain, has always been one of the most sought-after locations for Brits and will continue to remain one of the most desirable places for property investment.  While the real estate market has suffered considerably during the coronavirus crisis, since 18th May when viewings have been permitted again, there has been an increase in requests, boosting confidence that the real estate market will undergo a quick recovery.

Costa del Sol

Famous for its beautiful beaches, art and culture, amusement and national parks, the birthplace of Picasso has always been among Brits’ favourite places, both for their holidays, but also for living and buying property.

Its beauty and popularity have not faded due to the pandemic. Instead, luxury villas and high-end developments in hot spots have retained their value. Other areas might become even more overpriced, while other less sought-after locations might have more realistic prices. According to Olive Press, “when it comes to new developments along the Costa del Sol, again, this wonderfully touristy area ensures a healthy outlook. The construction industry is seeking help to ease it through these difficult times, with calls to rethink new construction tax and bureaucratic processes.”

What to consider

  • Prices and Currency Volatility: The cost of a European property in Sterling can change drastically due to currency volatility as a result of political, economic or other events such as the current pandemic. Markets will always be moving, and prices will remain unpredictable, especially with Brexit uncertainty, the Bank of England’s possible move into negative interest rate territory and the increasing worries about the slow economic recovery.
  • Brexit: This is another topic that is likely to concern home buyers as there might be significant changes in regulations including the stamp duty and increased taxation. Despite the uncertainty, UK citizens will be able to buy homes abroad and live there. You will be able to stay, if you are legally resident in Spain before the transition period ends on 31 December 2020, but you will need to register as a Spanish resident if you want to stay in Spain for more than 3 months. If you are living in Spain before 1 January 2021 and register as a resident after 6 July 2020, you will be issued with a biometric residence card (Tarjeta de Identidad de Extranjero). If you move to Spain after 31 December 2020, there will be different immigration requirements.
  • Your strategy when transferring funds: Since you will be transferring a large amount of funds, you will need to consider how much that will worth after the exchange. Getting in touch with a currency specialist such as Universal Partners FX can help you navigate the current market while taking into consideration your specific needs, goals and your budget.

If you are considering buying your dream home in Spain, get in touch with Universal Partners FX so you can have peace of mind when sending a large amount of money overseas. If you want to schedule ahead and safeguard your funds, talk to one of their foreign exchange experts today.

The pound was lifted after the release of Markit's preliminary Purchasing Managers' Indexes for May which bounced from April's figures. However, the data is far from positive for many economists as Britain’s economy continued to shrink, suffering its worst contraction for the month of May. According to CBI chief economist Alpesh Paleja, May has been a “pretty awful” month for businesses.

Thursday’s release of data from IHS Markit’s PMI surveys, shows that both the manufacturing and service sectors have been shrinking as the lockdown continues, with signs that the pace of the decline is slowly easing.

The UK Composite Output Index for May was 28.9, up from 13.8 in April, the UK flash manufacturing PMI (May) 40.6, up from 32.9 and the UK services flash PMI (May) 27.8, up from 12.3. While the contraction is slower, still the readings are below 50, which indicates a slow in activity.

Chris Williamson, chief business economist at IHS Markit, explained today’s numbers:

“The UK economy remains firmly locked in an unprecedented downturn, with business activity and employment continuing to slump at alarming rates in May. Although the pace of decline has eased since April’s record collapse, May saw the second largest monthly falls in output and jobs seen over the survey’s 22-year history, the rates of decline continuing to far exceed anything seen previously. Travel and tourism firms, hotels, restaurants and producers of consumer goods such as clothing were again the hardest hit, reflecting virus containment measures, but this remains a shockingly broad-based downturn with very few companies left unscathed by the COVID-19 pandemic.”

Businesses have suffered

With businesses shut during the lockdown, activity has been low, with cancellations of orders and a drop in demand. New employment to UK firms was also low, resembling the record lows of April.

The slowdown shows the stark reality of the coronavirus impact on the economy, which is slightly different than economists’ optimism and expectations of a quick bounce back.

For Neil Birrell, Chief Investment Officer at Premier Miton, the recovery will happen, but is still far away: “The PMI data in from the UK and Europe suggests that the outlook is improving. That is to be expected, as the surveys are taken mid-month and economies were more open than they were in mid-April. But with UK Composite PMI at 28.9, albeit up from 13.8 in April, and the Eurozone Composite PMI reading at 30.5 the outlook is still grim. Markets may well take this as a sign that the nadir has been reached, although recovery is some time off.”

Similarly, Duncan Brock, Group Director at CIPS, believes that a second wave of Covid-19 infections could slowdown recovery. He said that the easing of the lockdown does not signal a clear way towards improvement in the manufacturing and services sectors. He added: “This month saw another steep fall in overall business activity, surpassing for the third time the rates of decline seen during the global financial crisis in 2009. No new orders, premises shut down and furloughed staff unable to return to work were at the heart of the desolation as business struggled to continue with two hands tied behind their back.” Additionally, if job cuts continue and “purse strings will be drawn tightly shut and spending severely curtailed, putting further pressure on the UK economy and ensuring any recovery is many years into the future.”

If you are sending money abroad and are worried about currency volatility due to the current economic conditions, please get in touch with Universal Partners FX. UPFX’s dedicated foreign exchange specialists can help you access bank-beating exchange rates and transfer your funds fast and securely.