`Brexit' Blues as Plunging Currency Pounds U.K. Vacationers

Is the Risk of a 'Brexit' Being Overstated?
  • Easyjet, Ryanair advocate vote for U.K. to Stay in EU
  • Sterling seen holding losses through summer travel season

Rachel Holdsworth has the “Brexit” blues.

The 38-year-old London resident is anxious that her already expensive planned holiday to Norway is getting pricier with each passing day. The pound is sinking under the weight of worry that her fellow subjects will vote to quit the European Union.

“How much I pay will be entirely dependent on the exchange rate,” says Holdsworth, who will travel in May. “Norway’s not cheap at the best of times.”

Her distress is shared by other Britons slogging through winter as their thoughts turn to summer vacations. Sterling has fallen against every developed-nation rival this week, raising the price in pounds of everything from Mickey Mouse hats at Florida’s Disney World to a glass of Cote Rotie in Paris to a Kayak trip in the Norwegian fjords.

The pound has sunk to its weakest since 2009 against the dollar and is almost 12 percent below its five-year average. It’s still about 2 percent stronger than its five-year average versus the euro.

“If you are anything like me and have a U.S. holiday already in the diary then you are hoping that the near-term turmoil recedes sooner rather than later,” said Jeremy Cook, chief economist at the London-based currency exchange firm World First U.K. Ltd.

Too Late

It may not -- at least not until summer officially begins. The referendum on the U.K.’s EU membership is set for June 23, suggesting even a vote for remaining would come too late for the pound to recover its losses by the time traveling begins in earnest.

The pound is the worst performing major currency against the dollar this year, tumbling more than 5 percent. Traders are betting that even more extreme price swings are to come, pushing a gauge of volatility to the highest level since 2010.

If voters reject EU membership, the world will get even costlier for pound earners. Sterling, now about $1.40, would plunge to $1.35 or below within a week, levels last seen in 1985, according to 29 out of 34 economists surveyed by Bloomberg News. Most don’t see the pound recovering the bulk of its losses even by the autumn.

Pro-European campaigners this week cited Goldman Sachs Group Inc.’s warning that the currency may fall 20 percent on a “Brexit” in their lobbying material. 

‘Tough Backdrop’

The debate “creates a tough backdrop for summer 2016 U.K. leisure travel,” HSBC Holdings Plc strategists said in a report on Wednesday.

On the other hand, the 400 million-plus residents of the other 27 EU countries would find it cheaper to ride in the London Eye or take in a West End show.

The weaker pound will “certainly make London a more attractive city-break destination for shopping and culture for passengers from Europe,” said EasyJet Plc spokeswoman Anna Knowles.

Martha Goncer, a 62-year-old teacher from Michigan who plans to visit the U.K. in the summer to visit her daughter, said she was “happy to hear the news about the pound falling and our U.S. dollar being worth more.” 

“We will plan to do the touristy things while we are there, and with the savings we will be able to include another sight or two in our itinerary,” she said.

Costlier Travel

Still, Groupe Eurotunnel SE, which runs trains under the English Channel, dropped the most in almost three years on Tuesday with traders citing fears of the U.K. leaving the EU.

EasyJet Chief Executive Officer Carolyn McCall told the Sunday Times this month that a British exit would propel the cost of air travel and potentially mean a return to when flying was “reserved for the elite.” She was among the executives who wrote a letter this week advocating continued EU membership.

Meantime, Ryanair Holdings Plc, the U.K.’s biggest airline, is taking out newspaper advertisements urging voters to stick with the EU.

“We’re going to actively campaign on this issue for the next three or four months,” CEO Michael O’Leary said in an interview Wednesday. “We’re going to bore everybody to death. We will also be campaigning with our passenger base, trying to influence people to vote in favor of Europe.”

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