A couple of months ago, the British pound fell to its lowest level against the US dollar since 1985, as market fears grew of a ‘hard’ UK exit from the European Union (EU).
Without getting into the politics of it all, essentially, the British government has announced that the UK will trigger the two-year process of exiting the EU (Article 50) no later than March 2017.
However, markets are worried because the government appears to be pursuing an exit that will end freedom of movement between Britain and EU member states. In retaliation, the EU is expected to provide harsher terms on Britain’s exit (Brexit) from the union, with many worried that this will negatively impact the British economy.
In a nutshell, that’s why the pound has fallen to this 31-year low against the dollar. So what does this mean for you as a resident of the Gulf?
Well, if you have no connection whatsoever with the UK, and aren’t planning to visit anytime soon, the news will be of little consequence to you.
However, if you’re planning on just visiting the UK, or even investing in the country, this could be good news for you. The Gulf currencies are pegged to the value of the US dollar, so if one currency goes down against the dollar, it also goes down against the value of the riyal. In this case, the UK pound is worth less compared to a dollar, so if you’re exchanging, you’ll get more pounds for your riyals.
To be precise, as of this morning, you’d get 21p for a riyal. That’s opposed to pre-Brexit exchange rates, which would normally net you around 19p for every riyal.
Now, that doesn’t sound like a lot, but it all adds up once you start exchanging larger amounts of money. Say you’re heading to London on holiday, and you want to bring along SAR 5,000 of spending money. Previously, that would have gotten you around £900, but today, you’d get £1,065.75. In the UK, an extra £165 is not to be sniffed at – it could easily buy you a dinner for four, or pay for a family’s tickets to an attraction.
Indeed, if you’re out and about in London, and you’re using your Gulf bank account, everything will cost you less.
But currency exchange is simple. What about when you’re making investments in the UK – perhaps buying property. This is where the real savings kick in. Say you’re buying a house that, in the UK, costs £200,000. Previously, that would have set you back around SAR 1.1 million. Today, you could buy that house for SAR 938,306. That’s an enormous saving – more than SAR 150,000. Just for buying the house at the right time.
The flipside of that, of course, is that, if you’re buying a house in the UK to rent out to tenants, you’ll be paid in pounds, too. This means your monthly income from renting out the property will amount to fewer riyals, so bear that in mind when planning out a big investment like buying property.
And to be clear, there are those who advise holding on. Some believe that the British pound will fall further still, making riyals even more valuable against the pound.
That said, even if you decide to spend your riyals on pounds now, you can rest assured that you’ll be saving much more than if you’d have done so six months ago.
This article is designed to be informative only, and does not constitute financial advice. You should always speak to a trained professional before taking out any form of finance, making investments, or taking foreign exchange decisions.