Six knock-on effects of a plummeting pound

Six knock-on effects of a plummeting pound
By Chris Harris
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The slumping value of the pound has an effect on tourism, foreign workers in the UK, exporters and expats.

Tourism boost for Britain


Tourism already contributes massively to the British economy – overseas visitors to the UK spent £22.1 billion (24.4 billion euros) in 2015 – and a weak pound could help boost that figure.

Sliding sterling means Europeans and Americans, among others, get more pounds for their euros and dollars, making a British holiday more attractive.

It means we can expect more tweets from airlines, like this one from British Airways, trying to take advantage.

Your dollar has never gone further, and with our amazing 3 day sale you can see even more of London!

— British Airways (@British_Airways) June 27, 2016

But fewer Brits abroad

The flip-side of Britain’s tourism industry getting a shot in the arm from a weak pound is that holidays for Britons are likely to become more expensive.

They will get fewer euros for their pounds, meaning a holiday in Spain, Greece or elsewhere may become less attractive, in terms of the cost, at least.

Air ticket prices could be affected more than most. UK-based airlines, such as easyJet, will find imported goods, in particular fuel, more expensive. Oil is priced in dollars and the pound fell to a 31-year low against the US currency last week.

Luton-based Monarch Airlines secured a last-minute cash injection this week
so it could continue operating package holiday trips, after earlier admitting its business had been hit by terrorism, Brexit and a weak pound.

If the number of foreign trips made by Britons does decrease then hardest hit are likely to be Greece, France and Spain, the latter of whom welcomed eight million Britons to its shores in the first half of this year.

Foreign workers

If Britain’s vote to quit the European Union and reports of increases in hate crime towards immigrants were not enough to deter foreign workers, then a weak pound maybe the final blow.

For migrant workers from places like Romania and Bulgaria, the fall in the value of the pound makes it less attractive to work in the UK, especially for those who send large sums of money back home.

It emerged over the summer that the UK had a shortage of fruit and vegetable pickers – roles often filled by EU migrant workers – following the depreciation of the pound. “Workers from Romania and Bulgaria can go to Germany to pick asparagus or strawberries, it is a better alternative for them,” a UK recruitment firm told the Financial Times.

Importing goods more expensive

For UK-based firms that import goods and services from abroad, a weaker pound could be a major headache.

That is because the items they import are likely to rise in price, hitting the importing firms’ costs and pushing up prices.

Tesco withdrew key brands like Marmite and PG Tips from its online shelves amid a row with supplier Unilever, which wants to hike its prices to compensate for a sharp decrease in the pound, even though some of those items are made in the UK.

For consumers it will mean higher prices for imported goods, such as food, petrol and electrical goods.

Easier exporting

On the other hand, British exporters and those importing the goods or services, are likely to benefit.

A weaker pound should make British exports less expensive for purchasers and more competitive in the international arena.

That is the theory at least. While it’s still early to see the effects of a weak pound, the UK’s balance of trade deficit – the difference between exports and imports – grew to £4.7 billion (5.2 billion euros) in August. Imports jumped 5.5 percent but exports just 0.1 percent.


Expats hit?

The Brexit vote disappointed many expats living in the European Union; a weak pound could be an even bitter blow.

Retirees who rely on a British pension or investments in the UK for an income will be worse off, as will those expats who rely on tourism (see above) to pay their bills.

The foreign housing market – in places like France – is also likely to suffer, as the attractiveness of a home abroad becomes less financially viable for Brits.

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