Why the heat is on the British pound this summer

The British pound has fallen significantly in value against both the euro and the dollar, marking a difficult summer of the currency and rising holiday costs for British tourists heading overseas.

On Wednesday 8th August the pound fell in value against the euro to 1.11, its lowest level for nine months. Against the Japanese yen and the Swiss franc sterling was also down while against the US dollar it fell below $1.29 for the first time in almost a year.

The reason for the weakness in the currency has been blamed squarely on the inability of the EU and the British government to agree a deal on Brexit. The UK’s international trade secretary, Liam Fox, warned the likelihood of a ‘no-deal’ Brexit was increasing over the weekend, leading to a drop in the value of the pound. Economists in the EU and within the UK have repeatedly warned that a no-deal scenario will be damaging for all parties, particularly the UK that could see see growth shrink by up 8%. Last week the governor of the Bank of England, Mark Carney, warned the chance of a no-deal Brexit was “uncomfortably high”.

His statement followed Thursday’s announcement of an interest rate rise to 0.75%, a move which could further burden those in debt.

A hot summer and a low pound could be encouraging holiday makers to stay in the UK this summer

Earlier this week Thanos Vamvakidis, head of G-10 foreign exchange strategy at Bank of America Merrill Lynch, told CNBC: “If we don’t get a [Brexit] deal, sterling can be weaker by about 10%, (or) even lower. If you get a deal, any deal – (sterling) can be up by 10%. I don’t think any other currency can have these kind of moves in the next few months.”

Heat exchange

The pound’s weak performance, ongoing since 2016’s vote to leave the EU, has been further impacted by the exploitative levels of currency exchange rates and fees charged by FX traders, notably at airports. Last month Glint Perspectives reported on firms charging customers up to £100 over the value of the currency they wanted to buy.

Even the physical pound coin has encountered some issues it seems. The Royal Mint recently reported that 169 million of the old pound coins are still unaccounted for. They were taken out of circulation last October but not all have been returned to the mint, leading to speculation that a collective treasure of £169 million is hiding down the back of the nation’s sofas.

The mint estimated over 3% of all old pound coins in circulation were forgeries, “generating significant costs to industry, the general public, taxpayers and the wider society”.