Page last updated at 15:27 GMT, Sunday, 14 December 2008

Pound 'buying less than a Euro'

Euro and pound notes
UK holidaymakers are getting fewer euros for their pounds.

The falling value of sterling means some people are getting less than a euro for every pound when changing money, The Observer suggests.

After commission and handling fees were charged, customers at some airports got just 197.13 euros for 200 on Saturday.

Last week sterling fell close to 1.11 euros - but the commercial rate obtained by tourists is usually lower.

Worries that the UK economy would be among the hardest hit by the recession have dented the strength of the pound.

In addition, UK interest rates are at their lowest level since 1951, and are lower than those in the eurozone.

While a euro is worth about 89p now, it was worth 71p at its physical launch in 2002 (and 57p on foreign currency markets during its all-time low in 2000).

As the pound has moved close to parity with the euro, some analysts have raised the possibility of the UK adopting the single European currency.

Martin Slaney, head of derivatives at GFT Global Markets, said that the pound may fall further as economic woes continue.

"The 12-month outlook is pretty bleak for the pound," he said.

"The euro is becoming the darling of the currency market and there's no confidence in the pound and I would not be at all surprised if it hit parity with the euro and even fell a bit below that."

Pound verses the euro

The Conservatives and Liberals Democrats have said that the government is to blame for the collapse of the pound - saying that a decision to allow public borrowing to soar in order to fund tax cuts had dented economic confidence.

The chief secretary to the Treasury, Yvette Cooper told the BBC that the the government was not planning to step in to support the pound, saying that attempts by previous administrations to target exchange rates had been unsuccessful.

Instead the government would continue to try to keep inflation under control and support the economy, she said.

"We have never had a policy of targeting the pound. Our policy has been to target inflation and that, I think, has been the right way. It has paid off over the last 10 or 11 years."

The research in The Observer found an exchange rate of 1.0532 euros to the pound on London's Oxford Street - meaning 18 euros cost 19.61 after a handling fee.

Customers at Travelex counters at Liverpool and Birmingham airports were getting 197.13 euros for 200. while those at the ICE Bureau at Luton airport received 199.63 euros for their 200.

Ms Cooper acknowledged that the pound's weakness meant British tourists were suffering as a result of sterling's weakness.

But she said that the low pound was also good for UK exporters whose goods become cheaper for customers in the eurozone.

And with trips to the UK becoming cheaper for visitors from Europe, some firms are hopeful that an increase in tourists will boost business.

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