A strong pound: what it means for you

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Pound notes

The pound is riding high at the moment - over the last few days, its value has jumped to about €1.25 and $1.70.

With sterling hovering around its highest level for years against both the euro and the dollar, we investigate what it means for everyone from business owners to holidaymakers.


Why has the pound strengthened?
The economic data coming out of the UK recently has been very positive, with both inflation and unemployment falling, and house prices on the up.

However, the big trigger for the recent surge in the value of the pound was the comments made last week by bank of England governor Mark Carney, who surprised economists by telling guests at a banquet in London that interest rates could rise "sooner than markets currently expect".

That was enough to send sterling soaring against both the dollar and the euro. Alistair Cotton at Currencies Direct said: "Investors like higher interest rates and Carney's comments make the UK the first country to stick its head above the parapet in this regard.

"That's meant an immediate bounce for sterling – good news for Britons holidaying in the US or Europe, less so for the small business owner or eBay trader trying to sell their goods overseas."

What does a strong pound mean for businesses?
From a business point of view, a strong pound makes imported goods cheaper - which is good news for retailers and manufacturers who import raw materials but sell to a UK market.

British exporters, however, preform better when sterling is low because a weak pound makes their goods more attractive to international buyers.

What does a strong pound mean for consumers?
A strong pound is great for British holidaymakers, who can get a lot more bang for their buck when they buy foreign currency and make purchases overseas.

Those travelling to the US will now get an extra $100 or so for every £500 changed, while those buying euros will see their spending power boosted by about €45 per £500 exchanged.

Should I buy my holiday money now?
There are no signs that the pound's recent run will reverse any time soon. In fact, if and when interest rates do start to rise, the value of sterling will probably get higher still.

Equally however, there are no guarantees that the pound will not lose some of its recent gains in the short term - the value against the euro has fallen slightly already, for example.

Anyone heading abroad over the next couple of months may therefore want to remove the risk and lock into a great exchange rate by buying their holiday cash now.

"Currencies can fall as well as rise, so if you're not planning on travelling until later in the summer, you may be advised to buy your currency now," Cotton said.

Either way, it always makes sense to plan ahead to avoid getting ripped off with poor rates at the airport, and to shop around for the best deals - online or on the high street.