Belfast Telegraph

Tuesday 30 September 2014

Strong sterling sees Northern Ireland tourism take a pounding: Cheaper foreign holidays on rise as consumers avail of big dip in prices

Cheaper foreign holidays on rise as consumers avail of big dip in prices
Cheaper foreign holidays on rise as consumers avail of big dip in prices
Janice Gault from the Northern Ireland Hotels Federation

Northern Ireland's tourist industry is being hit by the rising value of sterling as more consumers opt for cut-price holidays abroad.

The exchange rate against the euro has reached an 18-month high, with the pound up around 9% on last summer.

That has helped drive down the prices of holidays abroad, with growing numbers of tourists flocking to hotspots such as the Costa del Sol and Algarve.

But it makes the job of luring people to Northern Ireland more difficult because their currencies will now buy them less.

The strong pound is impacting on businesses, boosting imports but hitting exports, and leading to cheaper food prices.

It is also likely to lead to a fall in cross-border shoppers, with fewer bargains for people coming up from the South.

Last week the pound hit the €1.25 mark, a rise of about 9% versus the euro 12 months ago – meaning around €50 extra for every £500 exchanged.

A report from the Post Office shows the strong pound has meant prices at European resorts have fallen 8% on last year.

Some of the best deals are to be had on the Costa del Sol in Spain, according to Post Office Travel Money's latest family holiday costs barometer.

The main casualty of the strong pound is likely to be the cross-border tourist industry.

Ann McGregor, chief executive of the Northern Ireland Chamber of Commerce, said: "Northern Ireland is struggling to attract tourists from the Republic and as sterling strengthens against the euro it will be harder."

Those involved in the travel industry say they are noticing an increase in families opting for cheaper European breaks.

Doreen McKenzie from Knock Travel said the strong pound was one factor pushing people abroad.

"People are realising that sterling is going a bit further on a number of currencies," she said.

However, the reverse is true for those coming the other way.

"It is swings and roundabouts, where the consumers with sterling in their pockets are enjoying an advantage whereas the people coming with euros are getting less value," she added.

"But I do think that given the number of local high-profile events, people do still want to come here."

Janice Gault from the Northern Ireland Hotels Federation said the rise of sterling was a double blow to the local tourist industry.

"Sterling being strong makes euro destinations more attractive, therefore people may look south or to other sun destinations this summer," she explained.

"The other side is the rise in sterling makes us more expensive, coupled with the fact we have a VAT level 11% more than theirs."

However, she said Belfast and Northern Ireland offered considerable value for money compared to other destinations.

If people are coming here for a specific purpose, the value of sterling is unlikely to put them off, she added.

Harry Adams of currency exchange firm Argentex Private said the rebound in sterling had come "at a very convenient time" for those travelling abroad.

He warned that it will also "squeeze" UK firms that export their goods and services overseas by making them more expensive.

Economist Richard Ramsey said one less noticeable result of the strong pound was lower food prices.

"We have had such high inflation over the last four or five years because sterling was so weak," he said. "Now that sterling is strong, the opposite is the case.

"The fact that you have a strong currency will actually reduce prices.

"We saw in the last week that food price inflation fell for the first time in about eight years."

The Chamber of Commerce also says a strong pound is important for manufacturers, as it makes the raw materials they import cheaper.

But exported goods and services become more expensive, making our goods dearer to buy abroad and squeezing manufacturers' profits.

"There is an issue around the exchange rate which isn't great and it fluctuates too much," added Ms McGregor "For example, today, when compared to a year ago, you would have lost 6% of your profit margin if you were exporting to the eurozone (9% if it was to the USA)."

A NI Chamber quarterly economic survey identified managing currency fluctuations as one of the biggest challenges for exporters, with 53% saying managing currency volatility in international markets was either "quite challenging" or "very challenging".

Winners and losers in the currency game

Q. What is the current status of sterling?

A. Growing expectations that UK interest rates will rise within the year are propelling the pound upwards.

In the last 10 days sterling has hit an 18-month high against the single currency, passing the €1.25 mark.

That is quite a shift from last summer when the value of sterling was around €1.14.

The pound has also hit a five-year high against the US dollar.

Q. And why does that matter?

A. It makes a big difference to anyone involved with changing money between currencies – and, given that many of us will be going abroad for holidays in the coming weeks – it is going to affect a lot of people.

So, too, businesses who trade abroad. The fact that the Republic is a member of the eurozone means it will also impact on cross-border shoppers.

Q. So, who are the main winners and losers?

A. Holidaymakers heading for Europe can get a better deal.

The strong pound means prices at European resorts are down 8% on last year, with the Costa del Sol in Spain offering some of the best deals, according to Post Office Travel Money's latest family holiday costs barometer.

Savvy travellers can expect to receive $1.70 for £1 – which will make for great deals in places such as New York. By contrast, it isn't good for those visiting our shores.

Small businesses relying on tourists coming to Northern Ireland may feel something of a squeeze.

Some economists have warned that as the pound gets stronger, it could mean a rise in interest rates for Northern Ireland.

Q. What about business?

A. It is good news for importers, not so good for exporters.

That is because imports become cheaper, making life easier for retailers who can sell food and white goods at lower prices.

Manufacturers enjoy cheaper raw materials and can retain the benefit if they sell their produce in the UK.

But exported goods and services become more expensive.

Q. I'm not going away until August. Should I buy my currency now?

A. Compared with this time 11 months ago, the pound is up 14% against the dollar, so anyone changing £500 will pocket an extra $103. The pound has risen 9% versus the euro on 10 months ago – meaning an extra €50 for every £500 exchanged.

Holidaymakers wanting to take advantage of today's exchange rates could consider a prepaid currency card, which allows the holder to preload money from their bank account on to the card, fixed at that day's exchange rate.

Q. Is it likely to change any time soon?

A. The economic fundamentals don't point to any near term downward pressure on sterling, according to Mark O'Brien from Investec.

However, the upcoming referendum on Scottish independence could have an impact on the currency.

Sterling may weaken later this year if the 'Yes' side in favour of independence continues to gain, Mr O'Brien said, because of the uncertainty around the future shape of the UK.

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