THE intervention of London Mayor Boris Johnson - who announced he would campaign for the UK to exit the EU - is having an effect on the value of the pound.
The news has come as a blow to UK holidaymakers.
Uncertainty surrounding the future of Britain’s place in Europe has caused the pound to lose value against other currencies, increasing the cost for Brits to holiday overseas. Investors are said to be worried about the possible economic fallout of a decision to leave.
The pound fell against all major currencies on this morning (Monday). It was down 2 per cent against the dollar to $1.41, the lowest since early 2009. The pound also dropped 1.3 per cent lower against the euro.
The market reaction implies that a ‘Brexit’ (Britain exiting the EU) is negative for the pound and UK sovereign bonds.
Kit Juckes, a strategist at French bank Societe Generale, whose bank rates the risk of ‘Brexit’ at 45 per cent, said: “We are likely to see further sterling weakness ahead of the vote itself, as the debate rages and uncertainty undermines confidence.”
The news that Johnson was joining the Brexit campaign prompted betting firm Ladbrokes to cut the odds on the U.K. leaving the EU from 15/8 to 2/1.
The crucial referendum on Briain’s European future is set to be held on June 23 2016.
Opinion polls show Europe’s second biggest economy is bitterly divided over the issue, with large numbers of voters still undecided.
Many large banks, like HSBC, have already spoken out in favour of Britain staying in the EU. Sections of the financial industry are worried about the impact of a Brexit on trade, investment and financial services.
Prime Minister David Cameron announced the date on Saturday after striking a deal to give Britain “special status” within the EU in an attempt to keep the country inside the 28-nation union.
He argues that being part of the club is good for the British economy, but his opponents say EU membership is costly, creates regulatory red tape and allows unlimited immigration.
The pound to dollar exchange rate has tested a seven-year low having tapped 1.4750 on Monday.
The good news attached to a weak pound is a respite for British manufacturers and exporters.
However if you are heading on holiday soon, you may want to put a little extra aside to compensate for increased costs.