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Foreign Exchange for Expats in the United Kingdom

Submitted: July 2013

The UK’s currency is the British Pound (GBP). The Bank of England (BoE) is responsible for monetary policy, and it is an autonomous institution.

Exchange controls have been abolished in 1979. There are no restrictions as to the holding of foreign currency in the UK, and the UK promotes itself as a competitive global financial centre. Non-sterling investments are available in the UK.

 

Exchange rate regime

The British Pound is a freely floating currency. However, the UK economy is highly exposed to the Euro-zone.

 

Monetary policy

As per the Bank of England Act 1998, it is the UK’s policy to achieve price stability and credible commitment. The BoE has a mandate to target an inflation rate of 2%. However, the inflation target has to be confirmed by the Government at the Budget Statement every year. Consequently, inflation targeting is subject to political debates, although the current inflation target has been effective since 2003.

Over the recent years, the BoE has failed to keep inflation in check while adopting an ultra-dovish monetary policy aimed at supporting growth. In March 2013, the Government has reinforced the BoE’s secondary mandate to support growth and employment. As the BoE promotes record low interest rates and tolerates above-target inflation, be wary of negative real interest rates. See Investment for Expats in the UK

Dovish monetary policy is in line with the current international trend. As a result, the pound exchange rate is not necessarily affected, especially if you come from another country with a dovish monetary policy. You might wish to check how the BoE’s policy interacts with that of your home country, as well as how the markets price this.

 

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