How will Brexit affect your holiday spending abroad?
By Benjamin Salisbury
The Brexit vote has huge ramifications for the UK economy. The long-term effects of the vote won't be clear for a while, and will depend on the terms of the exit. But how will it affect the cost of your holiday this summer?
abroad will cost you more
In the short-term, the main extra cost will be spending at your destination due to the lower value of the pound. Longer term, prices for holidays and flights abroad may go up.
After the results of the vote were announced, sterling fell from €1.32 at 11pm on 23 June to €1.22 five hours later and it has so far not regained ground. The drop in the pound means every time you have a meal or pay for petrol while on holiday, it will cost a little more.
"If you have already booked a package holiday, the drop in sterling shouldn't be an issue, as you paid for the holiday before the Brexit vote," says Sean Tipton, a spokesperson for the Association of British Travel Agents (ABTA). "What will have an impact is day-to-day spending at the destination itself." However, he says, if you purchased a package holiday, you'll have already paid for some or all of your meals, drinks, activities and airport transfers, so you may not feel the effects as much.
It is difficult to predict sterling's future, as currency values can change day to day. What is clear is that so far, sterling has dipped by at least 10% against most currencies. Whether it stays at this level, gains or falls further is uncertain.
"The increase in cost depends on what level the pound settles at," Chris Towner, chief economist at HiFX, a UK-based foreign exchange broker and payments provider, said in an emailed reply to questions. "Overall, the bias remains for sterling to test lower over [July through September] until more certainty returns to the market."
prices haven't gone up - yet
As a member of the EU, the UK's airlines were able to fly wherever they wanted across the free market. The UK will now try and negotiate access to the single market as Norway and Iceland have, to ensure flight costs remain similar. But how successful these negotiations will be is still in question.
Before the vote, airlines Easyjet and Ryanair said flights would cost more because of changes to aviation rules. Though neither has raised prices yet, Easyjet has confirmed in a post-Brexit statement that it won't hesitate to raise prices "if future arrangements add complexity".
cards have advantages, but better exchange rates aren't one of them
If you purchased foreign currency on a prepaid card before the vote, you should have gotten a good exchange rate, and the vote results will not affect that purchase. However, purchasing foreign currency on a prepaid card doesn't give you any special rates, so purchasing one post-Brexit isn't going to provide a better exchange rate.
That said, there are some advantages to using prepaid cards while travelling.
"Some prepaid cards allow you to hold money in different currencies, and you can exchange it between them," Brian Brown, head of insight for banking at Defaqto, an independent financial researcher, said in an emailed response to questions. "They also show you the sterling equivalent when you pay in the local currency."
Locking into a rate "allows you to keep tight control of your spending", said Towner.
currency or pay by credit card using sterling: which is the best deal?
It depends on the exchange rate at the time, but in general "we advise travellers to pay in the local currency as this generally offers a better exchange rate," says ABTA's Tipton.
But it's important to find the best deal that takes into account the exchange rate and any fees or commission to get the most for your money and not leave it until the last minute.
"If you exchange currency at the airport, you are likely to pay more than if you use your [credit] card through a provider that offers a competitive exchange rate," said Nguyen.
Paying in sterling or exchanging a fixed sum before you travel is a good budgeting tool because you know exactly how much you are spending.
If you have a holiday abroad planned, Brexit will certainly affect how much you're going to spend on it. Be sure to revisit your budget before you go, taking new exchange rates into account.
See related: What Brexit might mean for credit card consumers, Fraud more likely to occur with travel purchases, How will Brexit affect consumer credit availability and interest rates?
Published: 14 July 2016
- Are your selfies landing you in debt? – With the pressure to look the best in every photo, some young Britons are landing in debt to keep up appearances ...
- How to avoid and stop 'grey charges' – Paying for a service or subscription you no longer need is called a "grey charge". Here's how to avoid them ...
- How to pay debt on a fixed retirement income – Retirees have a fixed income and fewer opportunities to earn extra income, making debt repayments tough ...