Sunday, 21 August 2016

Sterling slump is one hard fact in Brexit confusion


The travel industry is often said to be a bell wether for the UK economy and again, post Brexit, it is so proving. Leave supporters may whistle all they like to keep up their spirits, pointing to the fact that shares are up and there is no sign yet of a serious economic slowdown, but the one hard fact in the confusion is the weakness of staring. Holidaymakers flying abroad, many of them likely to have voted leave, are among the first to experience the painful impact of the vote. In the past few days some airport currency exchanges have been offering as little as 99 euro cents to the £. Now it is widely accepted that airport rates are a rip off, but elsewhere you're unlikely to get more than about 1.13, a fall of 13% since mid June, before the referendum. A couple of tour firms have already reminded surcharges, though it's important to remember that under the 1992 package travel regulations operators must absorb surcharges up to 2% of the original holiday price and cannot pass on any increase later than 30 days before you are due to depart. The giant too operator TUI has warned UK customers booking 2017 may have to pay more for they breaks than they would have this year. How much prices will rise is impossible to gauge. First nobody has any idea whether the £ has now hit the bottom, second it depends on the proportion of the holiday price accounted for by hotels and other elements charge in the destination currency and third it depends on the rate at which the operator priced this summer's packages. If those costs represented 60% of the package price and sterling stayed at its current level it's likely the price would have to rise by just under 8% - and that's without adding any impact the cost of airline fuel, which is charged in US dollars. Tour firms are in a bind. Responsible firms buy most of the foreign currency they need on the forward markets to cushion the impact of a slump in the value of the £. If the direst warnings of the Bank of England and other experts come to pass this will prove crucial. But if they buy at depressed rates and sterling bounces back this means they may lose out, effectively paying suppliers such as hoteliers and transfer coach operators more than they need. With interest rates at a historic low a recovery of the £ a ny time soon seems a distant prospect. But equally, such is the ludicrous lack of clarity about the meaning of Brexit and the timetable for withdrawal - if indeed that actually happens in a meaningful sense - that anything looks possible.

1 comment:

PacificExchange said...

Great Blog!! That was amazing. Your thought processing is wonderful. The way you tell the thing is awesome.

Currency Exchange San Francisco