What Dedollarisation Really Means for the UK Economy
Peter McGahan
Monday 23rd June, 2025.
THIS is the final column in the Dedollarisation Series.
Let’s start with what’s changing beneath the surface. The pound doesn’t float in its own vacuum. Every time a global investor pulls money out of dollar bonds and looks around for an alternative, sterling can become part of the conversation. But only if it has kept and is keeping its house in order.
In a world where investors might be searching for the ‘least dirty shirt’, the UK can benefit from capital rotation away from the US/dollar. London still has legal credibility, deep capital markets, and familiarity. Don’t underestimate that. But that capital is a bit skittish. If the government mismanages wage inflation, or fiscal deficits, sterling comes under pressure and, hey ho, we’re back where we started. It’s not a free pass.
For the FTSE 100, home to our multinationals, the story is a mixed one. Much of the income from FTSE100 companies comes from outside the UK. If the currency they are earning in (eg dollar) falls, their reported earnings fall. These firms already hedge (protect against fluctuations) foreign currency exposure and report in ‘constant currency’(strip out the effects of exchange rate movements when they present their financial results) to strip out noise. So, in the short term, a weaker dollar doesn’t swing the numbers. However, those hedging models rely on stable relationships between currencies and assets. Dedollarisation can change that as correlations break down. Hedging gets more expensive. Boards will still hedge, of course, but the safety net thins, and their translated earnings may get choppier. That rattles investors and can impact valuations.
UK dividend stocks? Still attractive. But less because of dedollarisation and more because of yield-hunting. Utilities and infrastructure assets offer stable income, but they're tightly regulated and not immune to review. Add stamp duty and inflation, and their long-term shine dulls a little.
Housing? It was never really about the dollar, and it still isn’t. Mortgage rates in the UK are tied to swap markets, which reflect global financial sentiment. And sentiment, lately, has been rattled. Higher swap rates have pushed fixed-rate mortgage costs up by hundreds of pounds a month. Even if the Bank of England starts trimming its base rate, that won’t fix things overnight. The pressure on affordability is now structural. Demand is softening. International buyers are pulling
back as their currency falls. And house prices? Likely to drift sideways in real terms for a while, especially in the pricier pockets of the market.
If you're holding your breath for cheaper energy thanks to a weaker dollar, you might go blue. Even if oil prices stay constant in dollars, a falling currency means we pay less in pounds. But exporters aren’t fools and can reprice to protect/increase their own margins. So the benefit might be fleeting, if at all.
And what of the Bank of England? You’ll hear that dedollarisation clips its wings. Not quite. The Bank’s hands are tied less by the dollar, and more by public sector wage inflation, persistent deficits, and political noise. Money might start moving around differently across the world, but the Bank of England still has ways to steady the ship, like tweaking lending rules, guiding the banks quietly behind the scenes, or even turning the money taps back on if things get rough (QE). More likely, they’ll target long-term rates directly if needed.
For the UK to truly benefit from dedollarisation, though, it must offer something beyond nostalgia. Free trade agreements, new financial instruments like a sterling-linked sukuk, and deeper connections with non-dollar trade corridors could help. But we’re a long way from joining the BRICS club. Real investment will flow here only if we show growth potential and institutional stability alongside flexibility of thought and red tape (think, planning).
In this new monetary order, winners are those with resources, self-determination, and infrastructure. Losers? Those who rely on yesterday’s privileges without building tomorrow’s capacity. The UK has the institutions, talent, and capital depth to play a role. But it’ll need policy clarity and reform, not just hope.
So as the dollar declines, remember: the future won’t be gifted to us. It must be earned. And in the meantime, the pound will need to punch above its weight, without forgetting how easily it can be knocked down.
If you would like a copy of our complimentary guide to dedollarisation or would like any questions answered in it, we will be writing it next week, so please do email us on info@wwfp.net.
Peter McGahan is the Chief Executive Officer of Independent Financial Adviser Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
