The British pound fell below $1.29 against the dollar on Wednesday 9 September to hit a six-week low. While you might not feel the effect immediately, a falling pound is likely to have an impact on your day-to-day finances in one way or another.
Let’s find out the reasons behind the falling pound and take a look at what a weaker pound might mean for you.
Why is the pound falling?
The fall of the pound has been primarily spurred by political factors within the UK.
More specifically, sterling became weaker due to concerns about what the government’s unveiling of a new legislation on the country’s post-Brexit plans will mean for its ongoing trade talks with the EU.
Much of the concern has come after a government minister’s admission that the new legislation would break international law, albeit in a limited way.
Understandably, there was fear among different stakeholders in the economy that this might interfere with talks between Britain and the EU to reach a free trade deal.
What does the falling pound mean for you?
1. Higher prices for imported consumer goods and food
A weaker pound is likely to push up inflation. Consequently, you might notice an increase in the price of several imported consumer goods and food items when shopping at your local supermarket.
You might, for example, notice higher prices for goods like clothing and electricals (an awful lot of which we import). This will happen if retailers decide to pass on the higher importation costs to consumers.
In regards to food, about 30% of what we consume here in the UK is imported from the EU. A further 20% comes from countries outside the EU. If the pounds falls further, you might find yourself having to dig deeper into your pockets when buying several of your kitchen staples.
The good news, however, is that price changes might not happen immediately. Many retailers actually purchase the foreign currency they need to pay for imports well in advance. Some also have sufficient stock (that can last several weeks) bought before any fall in the value of sterling. This means that they are not likely to raise prices immediately.
2. Pricier holidays
If you are planning to go on holiday any time soon, you might find yourself having to spend more on things like accommodation.
This is because your sterling will now buy you less foreign currency. Your holiday spending money, as a result, will not stretch as far as it might have done before.
While it might not hurt to wait a few days before changing your money to see whether the falling pound will recover and go back to its former levels, there is no telling when this will happen. Waiting might be a risky strategy as sterling could fall even further.
To make your money go further while travelling, it might be a good idea to pick up a travel credit card that does not charge interest for foreign transactions or fees for cash withdrawals. In addition to saving you money, a travel credit card can also ensure that you get the day’s best exchange rates.
3. Higher fuel costs
Since wholesale fuel prices are usually quoted in US dollars, a falling pound might lead to you having to pay more at the pump.
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