Not only are Britons travelling to the Eurozone over the coming months being advised by experts to exchange their Pounds now ahead of further falls in the value of the Pound against the Euro, but British pensioners across the Eurozone, in particular destinations like Mallorca which has suffered a sharp increase in the cost of living over recent years, been told to brace themselves for a fall in spending power.
According to financial experts, the Pound to Euro exchange rate (GBP/EUR) is likely to stay under pressure in the coming months, according to major banks, with MUFG, Mitsubishi UFJ Financial Group, and Deutsche Bank both warning that a dovish Bank of England stance could push GBP/EUR lower toward 1.11 by 2026.
A weak Pound against the Euro is generally not good for pensioners, especially those on a fixed income, because it makes goods and holidays more expensive. For those retiring or living abroad in the Eurozone, a weak Pound means their pension has less buying power when converted to euros.
However, the impact can vary depending on a pensioner’s specific circumstances:
Worsening Inflation: A weak Pound can increase inflation by making imported goods, including food and oil, more expensive. Since the UK imports more than it exports, this hurts pensioners on a fixed income, as their retirement money buys less.
Higher Interest Rates: To counter a weak Pound and inflation, the Bank of England may raise interest rates. While this could benefit savers, it also affects the value of private investments, including some pension pots.
Overseas Investments: For pensioners with a private pension heavily invested in UK assets, the value of their savings may be negatively impacted. However, those with investments spread across international markets, and especially those receiving dividends from companies with foreign earnings, might see some benefit.
Cost of Living: The overall cost of living increases due to more expensive imports, which is a major concern for UK pensioners. In some cases, a weak Pound has even forced retired expats in Europe to return to the UK.
Inflation in the euro area stood at 2.2 percent in September, up 0.2 percentage points from August levels. Eurostat confirms the preliminary estimates released at the beginning of the month, and also confirms the rise in services (3.2 percent, compared to 3.1 percent in August) and energy (-0.4 percent, compared to -2 percent in August). Non-energy industrial goods, on the other hand, were stable (0.8 percent), while general foodstuffs recorded a decline (3 percent, compared to 3.2 percent in August).
No change either at the level of the member states, where the cost-of-living level is confirmed compared to the preliminary data. Hence, increases for Germany (2.4 percent, +0.3 percentage points compared to August figures), France (1.1 percent, +0.3 percentage points), Italy (1.8 percent, +0.2 percentage points), and Spain (3 percent, +0.3 percentage points).
The European Central Bank will now analyze the data with the Governing Council meeting at the end of the month (October 30) to decide on monetary policy. Given the upward trend, it seems unlikely that the ECB will opt for an interest rate cut, which should remain unchanged at current levels.