The Guardian - 31.07.2019

Section:GDN 1N PaGe:15 Edition Date:190731 Edition:01 Zone: Sent at 30/7/2019 20:59 cYanmaGentaYellowb

Wednesday 31 July 2019 The Guardian •

15

▲ Holidaymakers in Benidorm.

Travellers are likley to see the value of

the pound in their pockets fall further

PHOTOGRAPH: CHRIS RATCLIFFE/GETTY

Currency collapse?

What it means

Fears of a no-deal Brexit have sent

the pound plunging this week, with

currency markets more alarmed

than at any time since the aftermath

of the EU referendum.

On Monday the pound dropped

1.3% against the US dollar to touch

$1.22, while against the euro it fell

below €1.10. Relentless selling

pressure continued yesterday, with

sterling falling by a further 0.4% in

early trading, taking it below $1..

“It appears we are fi nally seeing

the potential repercussions of the

UK leaving without a deal,” said

currency traders Clear Treasury.

What does this mean for you?

The immediate impact is on

holidaymakers heading to the EU,

but a collapse in the currency has

wider implications for household

fi nances.

How much will I get for my money

on holiday?

It’s grim, with rates on off er far

worse than the “market” rates

traders talk about. At some UK

airports, the pound is already worth

less than a euro, and the same as

a dollar. At Heathrow, customers

walking up to Travelex desks

yesterday were being given €0.

for each £1, while if they wanted

dollars the rate had collapsed to

$1.01. But sensible travellers know

to buy their currency in advance

online. Travelex was giving online

customers €1.063 and $1.

respectively for each £1.

Should I change my money now or

wait for sterling to recover?

“The pound is beginning to look

scarily cheap, with investors

positioning themselves for a rocky

few months before the next Brexit

deadline ,” said Fiona Cincotta, a

senior market analyst at Cityindex.

co.uk. With the political rhetoric

as it is, a rebound in sterling much

before the 31 October exit deadline

now looks unlikely.

How far could sterling fall?

Parity with the euro no longer looks

unlikely, and history tells us once

the currency trap door opens, the

falls can be painful. Sterling sank to

near parity with the dollar in the mid

1980s, though for a brief period.

What other eff ects does a fall in

sterling have on my fi nances?

Prices of imported goods in the

shops will have to rise. You know

those price tags on clothes in

Zara, in euros, sterling and other

currencies? It won’t be long before

the price in sterling has to rise.

Will interest rates go up to ‘save the

pound’?

Historically, a sterling crisis usually

prompted a rise in interest rates to

encourage foreign speculators to

hold the pound. But with the US

Federal Reserve expected to cut

its main rate by 0.25% tomorrow

and the European Central Bank

possibly following soon after, there’s

virtually a zero chance of a rate rise

by the Bank of England.

Patrick Collinson

after the EU referendum in 2016 infl a-

tion rose to the highest levels in fi ve

years , putting pressure on household

budgets and harming the high street

as retail spending slowed.

“If the pound hangs around at these

levels for a few months we would start

to see rising infl ation,” Clarke added.

The Bank of England has a 2%

infl ation target and would in normal

circumstances raise interest rates to

keep infl ation under control. How-

ever, faced with a global economic

slowdown and no-deal Brexit risks at

home, the Bank has limited room for

manoeuvre.

Fabrice Montagne, the chief UK

economist at Barclays, said: “[The

Bank will] insist that economic

uncertainty is translating into policy

uncertainty.”

The Bank of England will provide

an update on its thinking at the publi-

cation of its quarterly infl ation report

tomorrow.

The lower pound could benefit

UK exporters as British goods would

become cheaper for overseas buy-

ers. However, economists question

whether the sharp drop in 2016 led to

a signifi cant rise in exports, as UK com-

panies have complex supply chains

requiring components from abroad

that went up in price, eroding their

margins.

Andrew Wishart, UK economist at

the consultancy Capital Economics,

said market expectations implied that

the chances of no-deal Brexit had risen

to about 38% from 30% last week.

Crashing out without a deal could

send sterling tumbling to parity against

the dollar, breaking the all-time low of

$1.05 recorded in 1985. “Betting odds

probably underestimate the likelihood

of a no-deal Brexit as they only cover

the chances of one this year,” he said.

Larry Elliott Page 27 

Brexit watch Pages 28-29 

Encryption focus of

plans to beat terror

and child abuse

Dan Sabbagh

Defence and security editor

British, American and other intelli-

gence agencies from English-speaking

countries concluded a two-day meet-

ing in London amid calls for spies and

police offi cers to be given special,

backdoor access to Whats App and

other encrypted communications.

The meeting of the “Five Eyes”

nations – the UK, US, Australia, Can-

ada and New Zealand – was hosted by

the new home secretary, Priti Patel,

in an attempt to coordinate eff orts to

combat terrorism and child abuse.

Dealing with the challenge of

encryption was one of the key topics ,

offi cials said, at a time when technol-

ogy companies want to make their

services more secure after a range of

security breaches.

The meetings, however, were held

in private, with no agenda made pub-

lic, making it diffi cult to conclude

exactly what had been discussed.

British ministers have privately

voiced concerns about Whats App, the

messenger service that was used by,

among others, the three plotters in the

London Bridge terror attack.

“We need to ensure that our law

enforcement and security and intelli-

gence agencies are able to gain lawful

and exceptional access to the inform-

ation they need,” the Home Offi ce said

in a statement.

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