The Pound Euro rate Finally Hits 1.24

The UK pound finally went through the 1.24 Euro barrier today.

The £ Up to 1.241 Euros - A gain on almost 5.6% in 12 months

The latest UK employment data, that showed unemployment falling to 6.6% in May, took the £ over the 1.24 level. I predicted the increase in the £'s value last week, in response to Mario Draghi's actions to stimulate the Eurozone economy.

This makes travelling across most of Europe much cheaper than a year ago. The Euro area inflation rate is less than 1%. Meaning, in real terms, actual sterling costs for an average purchase will be almost 5% lower.
On a personal basis, this is extremely good news. I have arranged to pay for my holiday accommodation in the South of France in Euros.

Sterling Strongest Currency Tip for 2011

Barcap, the securities trading arm of Barclays Bank, has tipped the UK currency to to be the world's strongest in 2011. The pound has fallen 20% since the Banking crisis began in September 2008. Specific forecast rates of $1.82 and euro 1.28 is given for the end of 2011. Sterling closed at $1.58 today. This implies a rise of 15% against the Dollar and 7% against the Euro. Barclays is also bullish about the UK stockmarket, forecasting a rise of 18% in the FTSE.

French Economy Overtakes UK

One consequence of the £ falling against the Euro and Dollar is that we are falling down the world rankings for the size of our economy. For so long we've heard that the UK is the world's fourth largest economy. No longer. On a trade weighted index the £ is now the weakest it's been seen 1996 - the year before Labour came to power. As a result the UK has been overtaken by China and France. With a quarterly GDP of $559 billion we are 7.8% behind France who are fifth and 13% of Italy who are seventh.

The Euro Starts to Fall

According to The Daily Telegraph, the Euro has started to fall relative to other currencies. UK consumers will note with some alarm that in recent weeks the spot exchange rate has been in the area of 1.25 Euros per £. Well down on last summer, when rate was close to 1.50.

The consequences for the UK may mean higher import and holiday costs but in many respects this is good for the economy. The consequences within the Euro-Zone may well be catastrophic, particularly for weaker members that rely heavily on UK and perhaps US trade. The Telegraph highlights Spain, which enjoys a favourable balance of trade with the UK. As the Spanish are finding out, the Brits are no longer buying houses, least of all in the Costas. What scarce mortgage funds that are available will be diverted to UK house purchases. Along with Ireland, Spain has seen a huge boom in the property market. Nowhere else is the asymmetry within European economies going to be so severely tested.