How the soaring euro pushes up the cost of your holiday


Last updated at 08:49 24 March 2008

The cost of holidaying in Europe will soar this year as the value of the pound continues to slump against the euro, analysts have warned.

The strength of the euro means travellers are already paying far more for accommodation, food and shopping compared with last year.

And there will be no let-up in the months ahead.

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Six months ago it cost £67 to buy 100 euros. This has now increased to £78, a rise of more than 16 per cent.

It means a typical three-course meal for two in a French restaurant that cost £39.29 last year will now set holidaymakers back £45.73. Financial experts believe the pound could slip at least another 10 per cent in 2008, pushing the cost of the same meal to more than £50.

Those thinking of moving abroad or buying holiday homes have also been affected.

A 150,000-euro two-bedroom apartment in Spain that cost a UK purchaser £105,000 last year now costs £122,000 and could rise to at least £134,000. Another burden on travellers is the introduction by some banks of a fee every time a debit card is used abroad, on top of foreign exchange fees they already pay.

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The impact was seen during the weekend's Easter getaway, with just over 1.3million people travelling abroad compared with nearly

1.6million a year ago. The pound has gone into free-fall against the euro because international investors have lost faith in a currency that is facing an uncertain future over the international credit crunch.

Interest rate cuts also reduce the potential income for investors. The Bank of England has made two quarter point cuts to 5.25 per cent in recent months and more are expected.

Henk Potts of Barclays Wealth said: "Sterling will take a pounding against the euro during the course of this year because of the deteriorating economic picture, the Bank of England cutting interest rates and the trade deficit. The wise holidaymaker will avoid the Eurozone and head for the U.S., because the pound is incredibly strong against the dollar."

Even if sterling did rally over the coming months, package holidays will remain expensive as tour operators set prices with accommodation providers in advance, meaning they will have to pass on the cost of current currency rates.

Research by the Post Office suggests holidaymakers will increasingly switch to short city breaks abroad to offset rising costs.

Popular destinations are likely to include Budapest in Hungary, where the forint has strengthened 8 per cent against the pound - less than any other Eastern European currency - and cheap destinations such as the Estonian capital, Tallin, and Dubrovnik in Croatia.

Post Office head of travel Helen Warburton said: "After Black Monday in January, many people had to cut back on expenditure and there was a strong growth trend in two or three-night short breaks.

"With a credit crunch widely forecast, holidaymakers may well follow the same route."

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