Amid warnings that the pound could face pressure on the foreign exchange market, Patrick Collinson examines the impact
Holidaymakers heading to the Mediterranean could feel the pinch the most. Sterling’s peak last year coincided with the school summer holidays, when £1 could buy €1.285, compared with €1.18 today. Even if the pound slides no further, this summer families will find they are paying 7.5% more for food and drink in countries that use the euro, such as Spain, Italy and Greece.
According to the Post Office, the average British family spends £800 while abroad (on top of the cost of buying the holiday), so the pound’s fall means they’ll have to find another £60 or cut back on the sangria and retsina.
The Post Office expects Turkey and Bulgaria to benefit as they are outside the euro and their currencies have weakened.
The cost of anything imported rises because of a fall in sterling. But the most immediate impact is likely to be at garage forecourts because oil is traded in dollars on world markets. In recent weeks, Brent crude has gone from $109 to $112.50 a barrel. Although sterling has weakened less against the dollar, it could mean a 5% price rise.
Sterling’s fluctuations have been tough for the 390,000 Brits who live in Spain and the 150,000 in France. Any of them dependent on pensions or income paid in sterling saw their buying power collapse in 2009, when the pound plunged to €1.02. But even after recent falls, sterling remains well above its all-time low against the euro. Anyone emigrating now will find that buying a property abroad now will cost a lot more than last August, but for those selling up on Spain’s Costas and coming home – if they can find a buyer – it at least means the sum translates into more pounds.
Buying currency now
Should you buy your holiday money now to protect against further falls in sterling? In truth, playing the currency markets is hugely speculative, but if you do want certainty, travel money specialists recommend putting your holiday cash on a pre-pay card. It will be switched into euros at today’s rate and be ready to spend whenever you wish. To find the current best exchange rate for your money, try moneysavingexpert.com’s travelmoneymax service. The golden rule of holiday money is never to change cash at airports, which nearly always have the worst deals.
If you’re planning a bigger purchase, such as a holiday home, money brokers offer a variety of ways to lock in existing rates on all or some of your money before buying. Big brokers include HiFX (which the Guardian has a commercial partnership with), CaxtonFX and Travelex.
Of course, if you lock in now you’ll lose out if sterling bounces back. But Andy Scott of HiFX says: “With the potential for credit ratings downgrades and more quantitative easing from the Bank of England with the economy faltering, it’s unlikely there’ll be a resurgence of buying interest in the pound any time soon.”