Holidaying? Make the Most of your Weak Pound
Brexit: bad news for Pound-Euro exchange rate
British holidaymakers in Eurozone countries will find that their Pound has weakened against the strong Euro. Reaching an eight-year-low on Wednesday, Sterling has slipped below €1 at some airport currency exchange services, making things more expensive for British tourists holidaying in the EU. Brexit is clearly what is hurting the Pound, and many predict that it might drop even further, surpassing the low levels seen since last year’s UK Referendum vote to leave the EU.
Brexit and a strong Euro are the main reasons the Pound is down. The Pound dropped yesterday due to the increasing political uncertainties surrounding Brexit and the release of the purchasing managers’ index survey which showed that manufacturing in the Eurozone beat expectations in August. Today’s Q2 GDP growth data didn’t make much of a difference to the Pound. It is still struggling, holding at 0.08% gain against the Euro to €1.08. The Pound’s tiny little rise didn’t change the overall landscape. As Connor Campbell, financial analyst at Spreadex said, this “measly 0.3% Q2 GDP reading” “barely begins to scratch the surface of the losses suffered by the pound against its Eurozone peer this summer, with sterling still stuck under €1.09.”
Q2 GDP growth figures
Today’s data showed that the UK economy grew by 0.3% in the second quarter, an annual growth of 1.7%, which was the result of a positive contribution from the service sector. Production fell by 0.3%, construction by 1.3% and agriculture by 0.4%.
Business investment was flat but capital investment was stronger than expected, Kathleen Brooks from City Index said. She explained, that strong capital investment—which refers to buying things in the market, whether this is land, or machinery and goods for the benefit of a business, or money in your piggy bank; basically, any item or money not used for your everyday living or for your business’ operation is considered capital investment—suggests that investors are “willing to look through Brexit to our future outside of the EU.”
The Pound might be holding tight, but trade is suffering. As the Guardian points out, “it is not far off the trough of 73.3 reached in December 2008 during the financial crisis.” Phillip Inman, economic writer for the Guardian, said: “A significant depreciation of sterling in the wake of the Brexit vote was expected to boost exports. It has a little, but not enough to offset the extra cost from more expensive raw materials. It means that the latest figures for second quarter GDP show that net trade was zero, putting a drag on GDP growth. And it has dragged since sterling first began to depreciate at the end of 2015.” Net trade measures the change of imports and exports for the last quarter.
As it stands, the UK is the slowest growing G7 economy this year.
Weak retail sales
More disappointing news came from today’s CBI survey which showed that retail sales declined since July last year. From the 117 firms surveyed, 57 of them were retailers. The volume of sales fell and orders placed on suppliers, year-on-year, dropped too. Anna Leach, CBI Head of Economic Intelligence, said: “Despite the warmer weather at the start of the month, retail sales have cooled as higher inflation continues to squeeze consumers’ pockets. Meanwhile, deteriorating sentiment regarding the business situation has combined with falling headcount among retailers. Looking ahead, firms do expect sales growth to recover, but the pressures on household budgets are set to persist, given little sign of wages picking up.”
Pantheon Macroeconomics said that The Pound’s fall appears to be hurting consumers more than it has helped exports. In addition, with slow wage growth, and a higher inflation, households will be facing more trouble managing their day to day finances. Chief UK economist Samuel Tombs said: “Looking ahead, we expect the economy to continue to struggle, with GDP rising by just 0.2% in both Q3 and Q4…. CPI inflation still has further to climb, and the sharp fall in consumers’ confidence over the last two months suggests that households won’t continue to cut their saving rate.”
In the last three months, growth has relied on consumer and government spending, and seeing the continuing squeeze on real incomes, the signs aren’t positive.
With a weak pound, imports become more expensive and consumers are spending less. Travelling is also immediately affected as everything is more expensive.
So, if you are travelling this summer, try to use your money wisely, while avoiding money exchange booths at airports which, as some newspapers reported the last week, have hidden fees and can cost £100 more to holidaymakers, even if they are advertising “o per cent commission.” As it has been found, “If Britons heading on holiday were to exchange £500 into euros at the airport, this could mean an additional £100 is lost when converting the cash even if it states it takes no commission.” So, as we advise below, it’s better to be organised and see a currency exchange firm, rather than exchange your money the last minute at an airport.
How to get the best exchange rate
• The most obvious thing you can do is avoid currency exchange bureaus at airports. They are the most expensive. As Larry Elliott stressed in the Guardian today, “there have been plenty horror stories of travellers from the UK being gouged by foreign exchange bureaux.”
• The best thing to do is research and pick the best currency exchange for your money. Currency Solutions’ currency specialists can help you lock the most optimal rate for your specific needs.
• If you are going on holiday before the summer ends, then maybe deciding on a destination where you don’t have to exchange pounds for euros, and picking a country where the pound is strong might be the best.
• It’s best to pay in the local currency. Avoid using credit cards when you are travelling to pay for goods or services because some of these will charge you higher spending fees. For example, some of these can charge a 10% extra for each transaction, with lower rates at 6%. According to Express, “Turkey, Cyprus, Malta and Spain are some of the worst countries in Europe where Britons are stung by high charges” when using credit cards.
• Some retailers abroad might offer you the convenience to pay in your own currency, but beware, these will cost you more since the exchange rate will be higher.
Strategists at Morgan Stanley said that “buying the euro against the pound is the most sensible trade at the moment, indicating that they expect the single currency to become stronger against sterling in the short term.” UniCredit economists warned that the Euro’s upward trend is “showing no signs of slowing down.”