News Column

Holiday boost

July 26, 2014

Larry Elliott, economics editor

The strength of sterling is good news for those jetting off to the beaches of the Mediterranean this weekend, because their pounds will buy them more euros than they did a year ago. The same goes for travellers to the US, given that the pound is at its highest level in five years against the dollar.

Sterling has risen in the past year for three main reasons. Firstly, it had plenty of ground to make up after falling by 30% between mid-2007 and early 2008. During that period going abroad was enormously expensive.

Secondly, the economy finally turned the corner in the first few months of 2013 and it has been growing fast. The UK has grown more rapidly than the eurozone or the US, and that has made it attractive to investors.

Finally, the feeling in the markets is that the Bank of England will be the first of the world's major central banks to start raising interest rates. The prospect of higher yield on sterling investments has attracted money to London.

Is this a good thing? It will widen Britain's trade deficit in travel and tourism and that is also true for other sectors of the economy. The Bank of England has already said that any further appreciation of the pound would be unwelcome. Larry Elliott

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Source: Guardian (UK)

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