LONDON — Of all the violent shocks from the global economic crisis that have hit Britain in the last 18 months nothing has been quite as devastating as the collapse of the pound sterling. The numbers are stark. As recently as July, one pound was worth more than $2, down from a peak of $2.10 six months earlier. The value is currently fluctuating between $1.45 and $1.50.
When the pound was worth two bucks, Brits flocked to America. With airlines falling over themselves to discount transatlantic flights, a long weekend with the kids in Orlando wasn't that exorbitant. Any time of year was a good time for a shopping spree in New York. British shoppers treated Bloomingdales as if it was Wal-Mart. Those days are over.
But even more painful is the pound's decline against the euro. A year ago, it cost 1.50 euro to buy a pound. In recent weeks the two currencies have been trading at almost one for one. That has been a terrible shock to national pride. Britain stayed out of the single currency by choice, and vacationing Britons regarded the sterling's superior purchasing power as proof of the wisdom of that decision. Now holidays in the Eurozone are 30 percent more expensive and Brits are not smiling so broadly.
But Britons living abroad are the ones really suffering. One in 10 native-born Brits now lives overseas, according to the Institute for Public Policy Research. That may seem like a lot, but this is an island nation and there is a long tradition of moving abroad that goes back to the foundation of the Jamestown and Massachusetts Bay colonies. Today's Brits abroad are not colonists. They are retirees, mostly living in Eurozone countries.
The overwhelming majority of overseas retirees live in Spain, which has become the Florida of Europe. Three-quarters of a million Britons live in Spain year-round, the number swelling to a million at holiday times when those with second homes descend on the country. Most of the retirees congregate on the Costa Del Sol and the Costa Blanca, where there is an entire economy catering to their needs, including expat newspapers like Round Town, based in Alicante. According to Round Town editor Steve O'Grady, the collapse of the pound over the last four months has hit hard. "We're seeing the beginnings of an exodus back to the U.K.," he said.
But it isn't the people living on pensions at the head of the line. It's the thousands of younger Britons who moved to the Costa Blanca to service the massive retiree population. "The young people who came out to open pubs and restaurants serving the British community are having a very hard time," O'Grady said. "People on fixed incomes can no longer afford to eat out or go to a bar."
A faltering Spanish economy is adding to the problem. More than three million Spaniards — about 15 percent of the work force — are unemployed. The construction industry has been hit particularly hard. Many younger Britons moved to Spain to work in the construction trade and enjoy the sunny lifestyle. They now have to move back to Britain, where they won't find things much easier.
O'Grady thinks the retirees are going to try and wait things out. "They know they've got a year or 18 months before things hopefully turn around,” he said. “They are prepared to tighten their belts that long if they have to."
If there is an upside to the collapse of the pound, it should be among British manufacturers, whose exports suffered while the pound was strong. But now that the prices for British manufactured goods are once again competitive, global demand is contracting. Manufacturers are still suffering. This leads currency speculators to drive the value of the pound lower.
London is the main beneficiary of the collapsed pound, even though thousands of people in the city's once thriving financial services industry have been thrown out of work and businesses are cutting down on travel. Tourists from the eurozone are flocking in, picking up the slack for hotels and restaurants. Like the Brits spending in New York six months ago, Italians, Dutch, French and Germans are spreading euros around London. While their European compatriots keep the city afloat at posh stores like Selfridges and Harvey Nichols, Londoners are left to window shop.