Skip to content Skip to Search
Skip navigation

Britain’s plunging pound rattles Middle Eastern investors

Wealthy families from the Gulf still like the idea of a second home in London Creative Commons
Wealthy families from the Gulf still like the idea of a second home in London - but for how long?
  • Appetite for UK assets weakening as investors look at other currencies
  • Gulf families buying London homes but rising interest rates a concern
  • UK still attractive to investors in areas such as technology and tourism

As Britain battles multiple headwinds of an unstable parliament, spiking inflation and a weakened sterling, global investors have taken note.

The pound fell to two-year lows against the dollar this month – trading below $1.19 at one point – and Middle Eastern investors are now looking to spread their UK risk, a senior executive at the world’s largest wealth manager told AGBI.

Josef Stadler, executive vice chairman at UBS, said he has witnessed an erosion of Arab willingness to take on British investments. 

“We slowly see their appetite for UK assets [weakening],” Stadler said. “The British pound hasn’t helped recently.

“Its relative weakness against other large currencies has caused many families to pause a little bit and reflect on whether this is the right place to be invested.”

Rod Ringrow, London-based head of official institutions at Invesco, added that Russia’s invasion of Ukraine in February had rattled Middle East sovereign investors with European holdings.

“[Arab investors] are comfortable putting more emphasis back in the US, and also away from the conflict zone,” Rinrow said.

A recent Invesco report quoted an unnamed Middle Eastern sovereign wealth fund officer as saying that European investments had been seen as “cheap prior to the invasion.”

However, it was now focusing “more on political risk” when making its valuations.

Arnab Das, global strategist at Invesco, pointed to a shift in trade and investment patterns over the last decade, which amount to a “cheaper fair value” for sterling. 

“For investors to continue to attract foreign inflows to finance its persistent current account and trade deficits, UK assets have to be cheaper for foreign investors to buy,” he said.

Das pointed to Britain’s Conservative party leadership battle following the resignation of prime minister Boris Johnson as a contributing factor to shaky investment sentiment.

Other factors are market access barriers originating from Brexit, Ukraine-related energy supply shocks and soaring inflation rates.

“As a result of these issues, UK inflation has risen above that of the US or Europe for much of the last decade,” he said.

World Bank data from 2012 to 2020 showed that over this period, average inflation in the UK was 1.69 percent. It averaged around 1.57 percent in the US over the same period, and 0.89 and 1.18 in France and Germany, respectively. 

Tie, Accessories, Accessory
War and politics cause economic uncertainty: Boris Johnson with President Volodymyr Zelensky

“The late-pandemic period and wartime commodity shock has now accelerated inflation above US rates,” Das added. “Sustained higher inflation is often accompanied by a weaker currency as investors seek to avoid currencies that become overvalued.”

However, the Invesco expert believes the UK remains attractive to foreign investors in select and thriving areas such as technology, logistics, defence, tourism and real estate.

Henry Faun, partner and head of Middle East private office at luxury property firm Knight Frank said that Gulf currencies – which are mostly pegged to the dollar – have done “relatively well” compared to the weaker pound.

That translates to “relatively good value” for Middle Eastern investors looking to invest in UK real estate assets.

Wealthy Gulf families looking for a second home remain interested in central London markets.

Younger generations are seeking properties in Zone 2 London neighbourhoods and the Home Counties such as Berkshire, Faun said. “But rising interest rates are a major concern.

“Most Middle Eastern family offices now take on debt when making investments, whereas they wouldn’t have in the past,” he explained, citing reasons such as tax efficiency and a desire to retain more cash in the bank.

“The increase in interest rates for dollar and Sterling currencies means debt is becoming increasingly expensive. 

“Many families are concerned about the global picture and waiting for things to settle down.”

David Madden, market analyst at London-based Equiti Capital, added: “Quite simply, a country’s currency can often be a pretty good gauge as to how people feel about that country. 

“Yes, the weaker pound may make investments cheaper [for Gulf nationals], but it’s cheaper for a reason. 

“The weaker pound is potentially contributing to a lower appetite among Gulf investors for UK assets, but it’s not just about the currency. It’s about the bigger, underlying issues the weaker currency reflects that’s making them cautious.” 

Latest articles

Groupshot, Person, People

Aramco invests $6bn to bolster local supply chain

Saudi Aramco, the world’s largest oil producer, has signed 40 corporate procurement agreements worth $6 billion to boost its localisation programme. The agreements cover supply of a range of products comprising strategic commodities, such as instrumentation, and electrical and drilling equipment. The move will strengthen Aramco’s domestic supply chain ecosystem, providing suppliers with long-term demand […]

Sabic said better conditions in its agriculture and automotive businesses are supporting its margins

Sabic reports loss of $747m as product prices tumble

Petrochemicals major Saudi Basic Industries Corporation (Sabic) reported a net loss of SAR2.8 billion ($747 million) in 2023, as average product sales fell by a fifth. The losses were also driven by the discontinuation of operations at Hadeed, its steel manufacturing subsidiary, which resulted in a loss of around SAR4 billion. In September 2023, Sabic […]

Masdar starts work on two UK battery storage projects

Masdar Arlington Energy, a subsidiary of UAE’s Masdar, has started construction on two battery energy storage system (BESS) projects in the UK. The Royle Barn Road plant in Rochdale and Welkin Road plant in Stockport will have a combined capacity of 55 MW and provide enough energy to power 25,700 homes.  Masdar acquired UK-based Arlington Energy in […]

Parkin controls more than 90 percent of Dubai's paid parking provision

Dubai parking operator IPO will fund EV expansion plans

Parkin, the Dubai government’s parking management company, plans to channel proceeds from its initial public offering into technological upgrades, including expansion of its electric vehicle services.  The company will release nearly 25 percent of its shares on the Dubai Financial Market next month.  The offering begins on March 5, with a price range to be […]