The Pound fluctuated in value against the Euro between February and December 2005 - data for overseas property investors to consider

The pound continued to lose ground against the euro in December as signs of an economic recovery in the Eurozone became increasingly evident. Eurozone gross domestic product (GDP) was up 1.3% year on year in 2005 and is expected to rise to 1.8% y/y in 2006; consumer spending is also expected to rise as oil prices begin to recede. EU manufacturing data also exceeded market expectations with the highest index figure since August 2004. The most encouraging aspect of this was the employment index which should help support a domestic demand recovery in 2006.

With concerns over inflation growing and Europe’s major economies recovering the ECB was forced into action in December and raised interest rates to 2.25%. Although Trichet has made it clear that the European Central Bank will not be entering into a cycle of interest “hikes” (like those seen in the U.S.) speculation still exists that they may rise again in February. Compared with interest rate stagnation in the UK (if the retail sector continues to suffer, potential interest rate cuts are on the cards). Consequently, in December EUR/GBP fell from a high of 0.672 to a low of 0.692 and on a £203k property that’s an additional cost of £5,812 in just one month. Another neat example of why it is always better for clients to fix an exchange rate and fix costs as soon as possible (in this example £194 for each day of procrastination!)

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