How will the weak pound affect you?

Published on 1 January 1970 by Raffick Marday

Unstable relationships with the European Union and concerns over the UK’s AAA credit rating have led to a weakening of the pound, as it falls below the €1.20 level for the first time in nine months.

cash back credit cardThe pound is currently worth €1.18, making a euro worth around £0.85. This is the first time the pound has dropped below €1.20 since early April 2012.

The pound has taken a 3% tumble since 3 January, according to Bloomberg data, prompting managing director at Argentex, Harry Adams, to suggest that “2013 could be a disappointing year for sterling”.

Jetting off abroad?

Casting aside the risk of the pound slipping any further, families will already be spending 7.5% more on food and drink in countries that use the euro – including holiday hotspots such as Spain, Italy and Greece.

According to the Post Office, this means that families will have to find another £60 on top of the average £800 they already pay (in addition to the cost of buying the holiday itself).

It is difficult to predict what will happen next in the currency markets. However, one way to protect yourself from further falls in sterling is to put your holiday money on a prepaid card, as your cash will be converted into euros at today’s rate and be ready to use as needed.

Staying at home?

However, the weak pound does not just affect UK jetsetters: it will have unwelcome consequences on home soil.

A fall in sterling automatically increases the cost of imports. Oil is traded in dollars in global markets, and since sterling has also weakened against the dollar, this could result in a 5% price rise in petrol – the perfect accompaniment to the rises in energy, food, childcare and so on.

The outlook for the UK economy isn’t great, but by budgeting and making some smart financial decisions, you can keep afloat amid the turbulent economic times.

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