By Stephen Jones
After an uncertain couple of years, British holidaymakers have looked on gloomily as the pound has bombed in value against other popular currencies. A number of factors, including record low interest rates, have led to sterling’s broad decline since the credit crunch hit, leaving Brits with much less bang for their buck when making trips to Europe and the United States.
In March 2007, £1 would have bought you 1.5 euro* - today it would get you around 35 cents less. The picture is even worse when looking at the dollar; before the financial crisis, Brits could enjoy exchange rates of $2 for every pound, but that has dropped dramatically to around $1.5 to the pound. However, with the storm clouds of the recession seemingly past, the big question now is where will sterling go next.
What does the future hold?
In the immediate future, things are not looking great for the pound. As odds on a hung parliament are made ever-shorter by bookmakers, political uncertainty is proving to be a dead weight around the neck of our currency. Part of the reason for this is that a lack of ‘strong’, single party leadership is typically seen as bad for the economy, and in turn bad for plans to tackle the country’s gaping budget deficit. This, understandably, leads investors to look elsewhere and means that the pound continues to struggle compared with its main competitors.
As David Clements, currency trader at Caxton FX, explains: “Political uncertainty, even in normal time, is always bad for the local currency.” However, in this instance, there is the “added element of an enormous public debt to service over the coming decade”, which makes the pound look even less attractive to potential businesses looking to put money into the country. As a result, he warns that holidaymakers should expert further falls throughout the election campaign unless a clear frontrunner emerges. (If you’re still undecided, just follow this link to compare the three major parties’ manifestos)
However, it’s not all doom and gloom. While it may not be fantastic news for our European counterparts, a crisis in the Greek economy has meant that the single currency has also faltered recently – perhaps the only reason that the pound has not yet fallen below the one euro mark this year. Furthermore, sterling is so weak in historical terms that Clements argues it is “due to regain a bit of value over the next few months or so”.
Indeed, although prospects aren’t too bright at the moment, the state of the international economy is so fragile at present that almost anything can change in an instant. If one party took a strong lead in the last weeks of the election campaign, or one set of economic figures come in higher than expected, British holidaymakers could well have something to cheer before too long.
As a result, people planning to travel later this year face a big question – do they expect further falls and buy now, or wait and see if they can get more for their money after the election? The simple answer is that no-one knows, so unless you can predict the future, you might be best placed by finding other ways of saving money on your trip abroad.
Where to go to beat the weak pound
For those of us that aren’t clairvoyants, one option is finding a destination that you know will let you make the very most out of your traveller’s cheques. As the dollar and euro rates have continued to weaken, an increasing number of consumers have done one of two things; holiday at home, or go long haul. With long haul bookings up 14 per cent**, we take a look at the options for those looking to head further afield:
Thailand (£ = 49.25 THB) – A big hit with holidaymakers this Easter, Thailand is currently offering a better exchange rate than you’ll get in most places. According to figures from Sainsbury’s Travel Money, demand doubled for the Thai baht in the week prior to the bank holiday weekend compared with last year.
Maldives (£ = £1.5 USD) – A traditional hotbed of luxury, the islands are proving to be especially popular this year according to tour operators, particularly for all-inclusive packages – which, of course, minimise the amount you spend while you’re out there. Airport services and most resorts price in US dollars.
India (£ = 67.9 INR) – Although the rupee has had a strong year, there’s still value and some great experiences to be had here. In fact, holiday operator Kuoni have picked India out as one of their destinations to watch over the coming year.
UAE – (£ = £5.50 AED) – The most in-demand currency this Easter, according to Sainsbury’s Travel Money. The Dirham received a 122 per cent surge in demand compared to the previous year, thanks in part to some top last-minute deals.
Sri Lanka – (£ = 174 LKR) – Tipped by Kuoni as the top wedding destination this year, Sri Lanka is expected to be a popular pick for Brits in 2010. Offers pretty good value when compared to similarly luxuriant locations.
[All exchange rates correct as of 19 April 2010]
*March 2007 average: 1 GBP = 1.49 euro
