We travel to America fairly often, normally on business. Whilst we are there we always manage to get a break to do some shopping.
Because the pound has been so strong against the dollar this has been a huge advantage, every price we see we just halve to get an idea of how much it would cost in pounds.
Now things aren't looking so good. The pound is slipping against a lot of currencies which means it costs us more.
As if it's not bad enough that things are costing us more at home they are also costing us more abroad.
This affects everyone who goes abroad on holiday, from big purchases in America to a meal out in Spain it is all costing us more.
A lot of clients are asking why it is that the pound is worth less, surely a pound is a pound?
To see why our money is worth less we have to go back to basic economics. When I studied economics the dollar was worth more than the pound!!
The most important principle in economics is supply and demand. A great place to see supply and demand in action is Ebay. Look up, for example an old playstation 2. There are loads around (high supply) and not many people want them (low demand) so the price is low. Now look up an iphone, the supply is low but demand is high so the price is high.
The principle is applied throughout economics and explains the change in the value of our money.
Last year the UK was looking strong as an economy compared with USA. Big companies, banks and investors have a choice of what money they hold their fortunes in. The Pound looked a better bet than the dollar so more people wanted the pound so it was worth more, now things have changed and more people are starting to want the dollar.
The reasons for this are fairly simple. Our interest rates are lower, so if you invested £100 you would get a smaller return than if you invested $100. Also inflation is creeping up in the UK so that your money is going to be worth less in the UK as opposed to USA.
For these and a number of other reasons more people are choosing to invest in dollars than pounds which means the price of the dollar is rising. Bad news for people who want to travel to USA.
The Good news however is for our companies who trade with America. When the pound was worth $2 this meant that if a British company was selling something for £100 it would cost an American $200, now the pound is down to say $1:80, the same product will cost an American $180, a 10% reduction without the British company having to reduce its profits.
So the advice is start selling to America and book your next holiday to Skegness :-)
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I don't find your blog friendly when I want to leave a comment.
This is because it requires me to have a gmail identity. It will limit the number of comments you receive.
A lot of currencies are shifting at the moment. While the US dollar was such good value for Europeans it meant that many Europeans chose to holiday at that relatively close distance, rather than fly to Australia, thus hurting the tourism trade down under. We are in a global economy and certainly need to consider this when evaluating the cost of holidays.
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