Weakened pound has pros and cons for British expats

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The most dramatic declines were against the Brazilian real (-28.4%), Russian rouble (-28.0%) and the Icelandic krona (-27.9%), while the pound fell by 17% against the US dollar and 13.3% against the euro.

On the basis of their research, the bank have concluded that the pound's declining value is a mixed blessing for Brits, with decreased spending power for holidayers and retiring expats, yet increased spending for those earning in a foreign currency.

This is good news for those of the five million Brits abroad who earn in a foreign currency, yet it's bad news for all of us buying goods and services originating from the rest of the world.

Energy

To take a prime example of such goods and services, 38% of the UK's energy came from abroad in 2015.

That this foreign reliance has serious repercussions, at least when the pound falls in value, is partly reflected in the price hikes introduced by suppliers in the second half of 2016.

The most notable of these was the 30% rise imposed on customers by GB Energy, who later collapsed in November as a result of climbing wholesale prices.

And if that wasn't enough, EDF announced towards the end of 2016 that they would be increasing prices by 8.4% in March, a move that signalled the likelihood of other Big Six providers following suit when their promise to freeze bills ends in April.

Of course, global wholesale prices are increasing on their own irrespective of British sterling, yet the fact that the pound is dipping means that energy companies will have to charge their customers more in order to cover their increased costs. As such, bills are likely to see additional rises for as long as the pound continues sinking against foreign currencies.

Fancy holidaying in Egypt?

And just to underline the severity of the pound's dive, Lloyd's research found that it made "significant gains" against only two currencies in 2016: the Egyptian pound (105.8%) and the Mozambique metical (23.0%).

These two are hardly heavyweights, so the fact that sterling outdid them isn't really worth celebrating.

Instead, the most important message of the research is that 2016 was a bad year for the pound across almost the entire board, with it declining against every G20 currency except the Turkish lira.

Summarising why such a fall is concerning, the Expatriate Banking Director at Lloyds, Peter Reid, said, "The pound's decline is bad news for British holidaymakers, with most destinations becoming more expensive in 2016."

And not only are holidaymakers hit by the decline, since as Reid added, "Many British expats will also be feeling the pinch; those with incomes in Sterling such as pensioners are getting fewer pounds when converting their money."

For instance, a pensioner living in Spain and receiving an average income of £361 [PDF] a week has seen its value in euros slip from €494.57 in 2015 to €429.59 in 2016.

This may not seem like a massive loss in itself, but when spread across all 52 weeks of the year it equals a difference of €3378.96 (€25,717.64 - €22,338.68), something which may have a significant impact on the ability of expat pensioners to maintain their living standards.

And given that many pensioners already have precarious finances as it is, this reduction in their income could push some of them over the edge.

Brexit?

However, before it's concluded that the vote to leave the European Union on June 23rd is the reason why the pound has taken such a tumble, one interesting and somewhat neglected piece of information came out of Lloyd's research.

Namely, the pound was falling in value many months before the no vote. As Lloyds observe, "The relative performance of sterling in the six months before and six months after the vote to leave the EU has a similar pattern."

In fact, the bank go on to note, "Sterling declined in value against 54 of the 60 currencies analysed in the six month period up to day of the referendum and fell the six months following the referendum against 51 currencies".

However, before it's claimed that Brexit isn't the main factor in the pound's decline, it's worth remembering that the main reason why it declined in the months before the June vote was that the prospect of the approaching vote itself caused uncertainty and anxiety in markets.

And given the ongoing Supreme Court case over the triggering of Article 50, this uncertainty and anxiety may continue for several more months to come.