REPORT
By Gökhan Kurtaran
London letter, week beginning August 22

Winners and losers of weak British pound

The negative effects of the Brexit have started to show a downward pressure on the pound sterling. Last month, the pound had beaten the Argentine peso to become 2016's worst performing currency after it plunged to a 31-year low in the aftermath of the decision to leave the EU.  Even now it is still not promising with the dramatic slide of sterling having already hit British tourists who holiday abroad. There was a further shock in store this week after some airports offered less than €1 to £1 at two of the U.K.’s major airports. At Stansted and Luton, travellers found they could not even exchange £1 for €1, which at least prepared them for the financial squeeze at their destinations.  

According to The Guardian, those holidaying in Europe are finding that meals, coffees, drinks and other items are typically at least 22 percent more expensive than a year ago. Moneycorp exchange booth at Stansted airport was at one point offering just €0.9915 for each £1 exchanged. The rate on offer at the ICE (International Currency Exchange) bureaux de change at Luton airport was even lower at €0.9900. According to M&S Bank, the typical cost of a one-week overseas summer holiday for a family of four, including flights, accommodation, meals and spending money, had risen by £429 compared to last year due to the fall in sterling.

And there is more bad news. The U.K. imported more than $625bn (£474bn) of goods and services in 2015; mainly from Germany, China, the Netherlands, the United States and France. A falling pound means that these imports will become more expensive - leading to price rises on the high street.

However in contrast, during the summer months, the increasing number of foreign tourists enjoyed the low value of sterling and contributed to retail sales. On Thursday, official data showed that retail sales leapt 1.4 percent in July following a drop in June – apparently helped by an influx of big-spending overseas tourists from the U.S., China and Hong Kong.

“For so long it has been, ‘I love going to London but it’s so expensive.’ Now it’s so much cheaper, we’ve seen a big increase in short-term bookings to London and regional U.K.,” said Kenny Jacobs, Ryanair’s chief marketing officer in an interview with The Guardian. Strangely London is becoming cheaper and cheaper with the falling value of the pound, while it gets more expensive for British people facing rising prices in products on shop shelves, especially imported products.

Even the world famous fish & chips could get even more expensive as most of the fish eaten in the U.K. is imported from Norway and Iceland, while much of the domestic catch is exported. Many British fishermen supported the Brexit prior to the referendum as they hoped it would free them from strict EU fishing quotas. However, salmon and imported seafood prices have already risen which is now reflected in market prices. Undoubtedly, further direct, indirect, positive and negative implications will befall the falling currency pressured by the ongoing uncertainty regarding the Brexit decision.

While foreign tourists enjoy the British summer at lower costs, British holidaymakers will find European holiday destinations more expensive. Importers are likely to struggle with the increasing costs due to the weak pound, and consequently costs will be reflected in supermarkets. This in turn could pressure consumer demand and spending patterns in the U.K.

 

 

22 Aug,2016

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