Share Prices & Company Research

Press Release

26 August 2016

Is less ‘bang for your buck’ a bad thing?

It has mainly been bad news for the Pound since the Brexit decision, with falls of 12 per cent against the US Dollar and 10 per cent against the Euro.

Sterling slumped to a 31-year low and had its steepest one-day fall in history after the vote. British holidaymakers were in for further disappointment this week as figures show, for the first time in 3 years, currency exchange desks at two UK airports were offering just €0.99 for £1. According to foreign currency specialists Caxton FX, MoneyCorp at Stansted and ICE at Luton were offering €0.9915 and €0.990 respectively. It’s not just current news that’s negative, Europe’s biggest bank, HSBC’s outlook for the Pound isn’t promising as it cut its Sterling forecast earlier this month. The bank predicts by the final quarter of next year, the GBP-EUR currency rate will be £1 for €1 and the Pound will fall 16 per cent against the US Dollar to $1.10, an even lower drop than the 30-year low reached in July.

Currency traders were expected to be among those most affected by the referendum and figures show that on 24th June, the day after the vote, currency trading volumes were two and a half times that done on a normal trading day. With ICAP’s electronic broking system seeing a huge £150.7bn of currency move across its platform. As the Pound rose just before the vote, suggesting traders were betting on a ‘remain’ outcome, but fell significantly after the seemingly unexpected happened – it is this volatility which can make or break trader’s profits.

However, not everyone is discouraged by these figures, with some sectors, retail in particular, benefiting from the currently weak Sterling. Overseas shoppers are making the most of the post-Brexit Pound slump, as international tax-free shopping rose 7 per cent in July, compared to last year. This follows previous expectation from economists at the Office for National Statistics (ONS), who said the Sterling slump may attract overseas visitors to shop in the UK. They have since confirmed this with Joe Grice, chief economic adviser to the ONS saying: “There is…anecdotal evidence from respondents suggesting the weaker pound has encouraged overseas visitors to spend. Department stores and specialist retailers like jewellers are among those reporting a good month.” This week’s official retail data has shown purchases of watches and jewellery are up 16.6 percent on the year, a significant rise largely attributed to foreign buyers. Prices in UK stores, compared to last year, are 18 per cent cheaper for European visitors, 16 percent cheaper for Americans and for Chinese visitors they are 13 per cent cheaper.

As well as London seeing an increase in shoppers, the effect of the weaker Pound has seen a surge in travellers to Manchester, Leeds and Liverpool, according to Ryanair. The budget airline said its biggest business increase has come from Chinese and Americans flying to Europe, using the network to then come to Britain and shop. Hotels are, therefore, seeing an increase in business, as people take advantage of the weak Sterling rate to stay in more expensive rooms. Edwardian Hotels in London said the value of reservations had increased by 31 per cent since the referendum.

Also on the back of Britain’s cheaper goods, UK export orders reached a two-year high in August and improved from -22 to -6. Manufacturer’s expectations for the next 3 months rose to +11 from +6 in July and with the release of positive consumer spending results and better-than-expected economic data, Britain may be bouncing back from the post-Brexit slump, adding further optimism about the future of the economy.  

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Please remember that investments and income arising from them can fall in value and you may lose some or all the amount you have invested. Past performance and forecasts are not a reliable indicator of future results or performance. Please note this article is for information only and does not constitute a recommendation to invest in any of the stock.

Is less ‘bang for your buck’ a bad thing?