Spanish Impact of UK Budget
April 28th, 2009
I suppose I should have expected a bumper news week following the UK Budget announcements on the 22nd. The only direct change potentially affecting property owners in Spain is that landlords may lose the ability to offset their UK tax bill.
Following the budget, Moneycorp’s predictions of Sterling struggling seemed to have been realised. Even so, predicting what will happen to the Euro / Pound exchange rate is a tricky business. One currency trader told me:
“Should the downward revisions to growth fall below market consensus, we could see the Euro strengthen back towards 0.9 GBP. Due to better than expected employment and high public borrowing, it is still difficult to forecast the relative strength of the UK economy. It is not expected at this time that the ECB will announce non-traditional policy tools at its May 9th meeting. Short term expectations are towards a strengthening EUR, however, longer term it appears that Sterling is undervalued and due for a correction – especially if the UK begins to shows signs that their aggressive monetary easing is affecting country’s economic recovery.”
No, I don’t know either – but it looks like we should expect fairly significant movements in the exchange rate in the near future. If you plan to be exchanging currency, it would probably be a good idea to read up about placing a forward currency order and locking in an exchange rate.
Almost in response to the UK’s ‘austerity budget’, other countries turned their attention to their own financial situation – and those of their neighbours.
In Ireland & Spain: Property Boom Cousins, we read that Spain is far less exposed to the vagaries of its property market than was Ireland – something which surprised me given how completely exposed Spain is.
However, this extra financial latitude, apparently enjoyed by Spain, is the cause for some concern. BNP economist Dominic Bryant said: “If they (Spain) don’t get the right policies over a number of years, they’ll get themselves into quite a mess over public finances”.
Of course Spain is not unique in being in that position. In Europe Must Try Harder, the IMF ‘encourages’ European nations to make more of a coordinated effort at bolstering their own and their collective economies.
In Spain to Curb Spending & Support Banking, the IMF focuses on what Spain needs to do to avoid dragging its European neighbours down – a sentiment echoed by Spain’s economic minister: “We shall start a process of restructuring our credit institutions to strengthen the system”.
My ‘silver-lining’ award this week goes to the Reuters article: Spanish Property Still Moving – Slowly. In it, an estate agent in Benalmadena says:
“British sellers are successfully selling homes along the high-rise beachfront because they have been willing to slash prices by up to 30 percent this year, compensated by gains on changing their euros into the weak pound.”
Back in January, I suggested that this would be happening and concluded “Spanish property owners looking for a quick sale, and wishing to take the proceeds to the UK, now have an ace up their sleeves. The sliding value of Sterling against the Euro means they can price their properties to sell – and minimise the impact of that price reduction.”
Martin Dell, Kyero.com
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