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the Pound Plunge Below the Euro?

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Emma Lunn, Thursday December 18, 2008

The pound's value has plunged by a further 1.2% against that of the Euro today. The tall takes sterling to its lowest-ever level against the euro - bad news for those set to go on holiday, as well as for the Government’s future borrowing plans. How much will your everyday goods rise in price as a result? We take a look

The pound’s unremitting decline against the euro increased this morning. The pound was worth just €1.05 this morning and its value has fallen by over 25% in the last 18 months, and by nearly 12% in the last four months alone.

The fall is bad news for tourists planning trips abroad because - once commission costs when exchanging currency are taken into account - sterling buys even less than the euro. The fall in the national currency has also increased concern over the Government’s future borrowing and current debt levels.

How much further will it fall?
The National Institute for Economic and Social Research has predicted that the UK economy will shrink by more than 1% in the fourth quarter of 2008. Such predictions - coupled with the longest decline in manufacturing since the industrial slump of the early 1980s, the downturn in consumer spending and housing market woes - have made investors nervous of holding sterling.

Analysts fear that the pound could weaken even further in the coming months. While this is bad news for British holidaymakers, it is better news for UK exporters. Imported goods, on the other hand, will be more expensive.

One euro now costs around 94p - the highest price differential since the currency was launched in 1999. Simon Derrick of Bank of New York Mellon, says the pound could drop to $1.40 against the dollar, with the euro-sterling rate passing 90p