Strong British pound has some airmen, families cutting back on off-base spending
RAF LAKENHEATH — At least the math is easy.
A pair of pints for 3 pounds each? That’ll be $12 please. A couple of 7-pound movie tickets and two 5-pounders for the kids to go see the new James Bond film? A cool $48, and don’t even think about popcorn.
With the pound holding steady right around an easy-to-convert 2:1 over the dollar, servicemembers and their families in England face a litany of wince-inducing cost-of-living hikes. And they are coming at a time of the year that money is normally tight.
The cost of rent, utilities, entertainment and off-base services such as car care and child care have all been rising due to the exchange rate. Airmen and civilians say the trend has been a pain in the wallet, but one they’re trying to grin and bear.
“You just kind of deal with it,” said Airman Jordan Lewis from the 48th Aircraft Maintenance Squadron, who lives on base and said he often visits a friend in Sheffield on weekends. “I’m not going to not see my friend just because it costs a little more.”
Senior Airman Jamie Olson from the 48th Maintenance Operations Squadron, who lives off base and said she normally does a fair amount of shopping in English stores, said she has cut back lately.
“I don’t buy as much as I used to,” she said, a conservative move that extended into her holiday shopping. Family members back home had an interest in authentic English gifts for Christmas, not AAFES purchases.
“I don’t get to get as many things as I would like [for them],” she said.
As of Monday, the exchange rate for the pound at military banking facilities was $2.02, compared to a $1.95 commercial, or bank-to-bank rate. The military rate at Community Bank tends to be slightly higher than the commercial rate because military bank rates include a 2.5 percent fee added to the bank-to-bank exchange rate — the money banks charge each other for currency.
The weight of the pound kept many American shoppers in the U.K. out of English stores this season, including Air Force spouse Kierstyn Krauz, who said she bought all the big-ticket gifts for her young daughter from two places: AAFES and online retailers.
Though sales numbers can’t be directly tied to shoppers’ habits due to a poor exchange rate, the Lakenheath main store’s figures that were flat in November are up more than 10 percent over the early part of December — with about 800 airmen deployed from the base, said store manager Robert Rice.
But from phone bills to restaurant tabs, exchange rates have made things more expensive for Americans in England, with few people able to answer the question:
The reason for the recent appreciation of the pound over the dollar is mainly linked to expectations in the market about interest rate policies in the U.S. and the U.K., said Gianluca Benigno, an economics professor at the London School of Economics. While other factors have been the cause of dips in the past — such as a widening American current account deficit — in recent weeks it has been the speculation that U.S. interest rates have peaked, and might be cut in 2007, while U.K. interest rates could still increase.
The reason Americans in England feel it in the pocketbook is because investors tend to buy bonds that give them higher returns (i.e. those with higher interest rates), and currencies tied to those returns tend to become more valuable, Benigno said.
In the end, it’s not only the actual interest rate that determines its relative strength but the market’s belief on how it will move in the future versus rates in other countries, he said.
The recent slide in the dollar’s value also builds on a rift that developed when the dollar depreciated from 2002 to 2004, when the market fretted about the U.S.’s widening current account deficit — which generally occurs when a country spends more money than it brings in.
It’s a complicated formula that leads to some pretty simple math: A one-night stay in an 80-pound hotel — $160.
Servicemembers in England commonly complain that their Cost of Living Allowance doesn’t cut it in a country where a Big Mac meal will run you $8.
A look at some numbers shows why. In the second half of November, when the dollar was in steep decline, an E-6 with two kids in Lakenheath received just $48.84 more in COLA than his counterpart in Ramstein, where the euro cost around $1.30 at the time.
Put another way, the Lakenheath airman received about 12-15 percent more in COLA than the Ramstein servicemember in a place where a unit of the local currency cost him about 40 percent more to obtain.
Proportionately, it doesn’t add up, and that riles people, but an explanation of how COLA is set explains why it happens, said Master Sgt. Scott Husted, the financial services officer for the 48th Comptroller Squadron.
The difference between COLA rates in separate locations is largely dependent on the results of a Living Pattern Survey conducted every three years at military centers around Europe, Husted said.
Taking into account things such as the availability of local goods and people’s shopping habits, the survey, plus a price comparison of local goods to similar ones in the States, are two of the major factors that determine COLA rates, Husted said.
If Ramstein gets proportionally more COLA than Lakenheath, it’s likely because, in its last survey and price indexing, the results made it appear proportionally more expensive, Husted said. And once those results are set, they stick for three years (the next survey results are due later this month).
After that, the third factor that determines COLA amounts is the exchange rate, which often lags behind jumps in the market, often making it appear as if the rate isn’t adjusting — though Husted would argue it does.
Lastly, part of the perception that COLA is too low has to do with people’s view on what it is intended for — to offset the cost of maintaining a U.S.-style lifestyle in a foreign country — not to heap money into airmen’s savings accounts, Husted said.
“It’s not something you bank,” Husted said. “The Air Force is not out to make you rich.”
Following the pound
A look at this year’s monthly COLA amounts for a hypothetical technical sergeant (E-6) with six years of service, two dependents, living off base in Mildenhall versus the exchange rates for the pound.
Following the pound