Sterling and the Euro
January, 05, 2009
Last January headlines were lamenting the weakness of the pound because a Euro was only worth 76p. Now 12 months later, and with virtual parity between the currencies, we’d be extremely grateful for the same rate. Not least because 2 beers cost me a tenner in the French Alps last week, making me long for West End prices back in London!
SaveBorrowSpend examines what’s up (or down) with Sterling, the Euro and what the experts think will happen next.
The pound has suffered because of perceptions that the UK economy is especially fragile – our public borrowing, economic reliance on financial services and high home ownership has all combined to make us look like a bad bet. Add low interest rates, with their knock-on effect on investments, and you can see why the demand for the pound is dwindling.
Get a FREE Guide to Investing in Uncertain Times
If you look at a map of the world, from West to East, you could say that America is just about seeing the beginning of the end of their economic crisis: the dollar is still relatively stable (and at $1.50 to UK£1 America remains a better holiday bet for Britons). As you hit the UK you can see the eye of the storm, a weak pound and battered economy. Now look at the Eurozone. Although not immune from the economic crisis, they are relatively unscathed. At the moment, that is. If interest rates drop in the Eurozone in 2009 (which experts say is likely as their exports become too expensive) then the value of the Euro will begin to fall. And countries such as Italy and France have structural issues with their economies that make them, potentially, as vulnerable as the UK.
Brits living abroad have been particularly badly hit, as many are paid salaries, savings and pensions in sterling. The continental second home dream has turned sour for many, especially in France. And for those of us who only visit, it still makes popular European holiday destinations more expensive. Which brings me back to the 2 beers I bought in the Alps last week, not to mention the 3 small hot chocolates (another tenner), the tiny Frankfurter and frites (£8.50)or half liter of cream for cooking (a fiver!). This really hits previously cheap options such as self-catering, with the previously good value supermarche now a scary place full of very expensive groceries.
Car Insurance due for renewal? Save up to £160 with Budget Insurance
As for the booze cruise at Calais… why bother? By the time I’ve paid for the ferry crossing I could buy the equivalent amount of wine just down the road at Tesco for virtually the same price.
However, for those visiting the UK (especially Europeans and Americans) now is an extremely good time to come to the UK and tourist boards will be making the best of it this summer. And, for Brits, travel agents are already reporting rising interest in non-Eurozone countries for Summer 09: countries such as Bulgaria, Turkey and Egypt all represent cheaper, non-long haul destinations.
Do you need to remortgage in the coming months? Get a FREE quote and advice from a FSA authorised advisor
So, 2009 might see a slight readjustment for the pound back in our favour but for the time being the economic landscape is a much harsher place. And, interestingly, the current sterling crisis has made no difference in public support for the Euro in the UK, with Britons broadly against. It’ll take more than an expensive week in a gite to get us to give up our currency!
If you enjoyed this article sign up for SaveBorrowSpend's weekly bulletin. You could also be in with the chance to
WIN a Year's Free Fuel 
SaveBorrowSpend Philippa Adam
