How LOW can it go? The winners and losers in the currency crisis
STERLING has crashed to a 31-year low against the dollar. Sally Hamilton identifies the losers – and winners – from this currency crisis.
Losers HOLIDAYMAKERS
FAMILIES heading abroad this half-term will feel the squeeze on their spending money.
Those heading to the eurozone will get €1,110 for £1,000 before commission and exchange fees, while on June 22 – the day before the nation voted to leave the European Union – they would have got €1,310. That means they will have €200 less to spend – enough for a slap-up lunch for four at the Eiffel Tower in Paris.
In the US, they will have $280 less – more than the entry cost for a family of four to the top floor of the Empire State Building.
TIP: If you are travelling longhaul, choose destinations where the pound goes further. According to currency specialist FairFX, travellers to Argentina get £220 more for their £1,000 than a year ago. Buy currency ahead or online for the best deals. Never buy at airports, where rates are poorest.
SHOPPERS
MOST products will cost more. This is because the cost of imports – from fridges and sofas to food and footwear – is rising. It is why Unilever wanted to charge Tesco ten per cent more to stock its products – brands such as Dove, Marmite and PG Tips.
Patrick O’Brien of consultancy Verdict Research says: ‘Though many retailers hedge against currency risk, these contracts will start running out in the middle of next year and will cost more at renewal. They will also be negotiating with suppliers to keep costs down. Large retailers may be successful but smaller players will be forced to push up prices sooner.’
O’Brien expects supermarkets to keep price increases for basic items to a minimum to remain competitive, while increasing the price of luxury goods.
TIP: Buy that washing machine now – and stock up on long-lasting brands for the larder.
SAVERS
YOU might think the carnage facing savers could not get worse – with the average instant access account paying just 0.43 per cent. Think again.
The higher prices in shops means the pound in your pocket – and interest on savings accounts – will be worth less. Charlotte Nelson, of comparison website Moneyfacts, says: ‘Savers may not see a minus sign on their interest rate but their returns will be negative in real terms.’
TIP: Switch £1,000 from an average easy access account to the best deal (ICICI Bank paying 1.14 per cent) to boost interest from £4 to £11 a year.
MOTORISTS
SINCE petrol prices are linked to the dollar, the cost of refuelling the average car will rise by £7 a month, assuming you fill up twice a month, according to Luke Bosdet of motoring organisation the AA.
He says: ‘This is a hammer blow to families, especially those who depend on the car to commute. They will get 25 miles less a month for their money.’
TIP: Choose petrol pumps wisely as a litre of unleaded already varies from £1.07 to £1.31. Locate deals by postcode at the website petrolprices.
ENERGY USERS
STERLING’S weakness is pushing up the cost of imported energy, so
expect gas and electricity bills to rise. Mark Todd, of comparison website energyhelpline, says: ‘Wholesale prices are already higher than before the referendum vote. ‘While this is not all due to sterling’s fall, the pound’s weakness has contributed. Price rises of ten per cent are a possibility this winter.’ TIP: Pick a fixed-price tariff before prices start rising again.
WORKERS
WITH few or no pay rises on the horizon – increases are expected to be just 0.1 per cent next year – family budgets will come under serious pressure, especially when inflation sets in. TIP: Boost income by renting out a spare room. You can earn up to £7,500 a year tax-free this way. An influx of tourists cashing in on the cheap pound could bring opportunities for Airbnb entrepreneurs.
EXPATRIATES
BRITONS living abroad but with all their earnings in sterling, including pensioners, have taken a hit.
Their buying power since the referendum has fallen 15 per cent in Europe and 16 per cent in the US.
European Union and Commonwealth citizens working in the UK but planning to return to their home countries will also lose out, because their sterling salaries are now worth less in their home country currency.
TIP: Owners of properties abroad who sell now will get more pounds from the proceeds of their property sale.
INVESTORS
THE FTSE100 Index fell to a low of 5,789 on June 24, the day after the referendum. It has since risen to a peak of 7,130 on Tuesday last week, before slipping back slightly to finish the week at 7,014.
Why has it risen? The sharp fall in sterling is good news for the big international companies that dominate the Footsie, since it pushes up the sterling value of their profits, which are mostly made abroad. It could also lead to higher dividends – in pound terms. The biggest companies in the index include HSBC, BP, GlaxoSmithKline, Shell, BAT, Vodafone and Diageo.
TIP: The Footsie could fall as fast as it rose. Investors should consider drip-feeding money into markets to avoid sudden losses. Consider global investment funds and diversify your investments.
MORTGAGE BORROWERS
HOMEOWNERS with a mortgage are benefiting from August’s 0.25 percentage point cut to the base rate. This was to calm nerves about Brexit, but it has compounded sterling’s weakness. If that stokes inflation the base rate could rise again.
Three-quarters of lenders passed on the 0.25 percentage point cut to those on standard variable rate loans. Fixed rates are also falling, according to Moneyfacts. The average two-year fix is 2.38 per cent – down from 2.48 per cent in August – while a five-year fix typically costs 3.01 per cent compared with nearly 3.08 per cent in August.
TIP: Grab a fixed-rate mortgage now as they are unlikely to become any cheaper.