Misery for holidaymakers as pound falls to five-month low against euro

Currencies Direct September 22nd 2009 - 2 minute read

By
Daily Mail Reporter

Sliding: The pound is now worth EUR1.10
Millions of Britons face another hike in the cost of travel today after the pound fell to a five-month low against the euro. The exchange rate dropped to 1.1016 euros per pound after the Bank of England warned that the UK’s record debt is putting off investors. It means items purchased in the 22 countries which use the single currency will now cost 6 per cent more than they did last month. Until last month, sterling’s value had been slowly rising since it sunk to an exchange rate of nearly one to one last December. In August it was worth 1.17 euros. But since then the pound has lost value virtually every day – renewing fears it will once again hit parity with the euro by Christmas. The fall in the value of the pound against the euro has sparked renewed fears the two currencies will hit parity – or becomes less valuable. ‘We were here last October and we headed down to parity against the euro by Christmas. I think we are going the same way again,’ Mark O’Sullivan from Currencies Direct told the BBC.

The pound also fell to a three-week low against the dollar today. One unit of sterling was being traded for just $1.6134.In its quarterly bulletin, the Bank of England noted that the UK had run current account deficits for more than a decade – sustainable as long as the deficit was offset by foreign investors’ purchases of UK financial assets. ‘But the financial crisis may have led overseas investors to reassess their willingness or ability to purchase sterling assets and thereby finance the UK trade deficit,’ the Bank said. ‘As a result, the long-run sustainable real sterling exchange rate… may have fallen.’ On Friday, official figures showed UK’s public sector net borrowing totalled 16.1billion last month. The government’s overall debt now stands at 804.8billion, or 57.5 per cent of GDP, an increase of 172billion in the past year. The massively increased levels of debt are due to the government bailing out troubled banks and its efforts to stimulate the economy during the recession. It has also had to contend with severely reduced tax receipts from house sales and City bonuses, for example.

Written by
Currencies Direct

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