What the falling pound means for your money – from petrol prices and beer to holiday cash and new iPhones
THE falling pound is set to hit people in a number of ways - from beer to petrol prices.
Sterling fell to its lowest level against the dollar since decimalisation in 1971 on Monday.
The currency fell by more than 4% to just $1.03 in early trading in Asia before recovering and is now trading at $1.08 this morning (Tuesday 27).
Here we explain what a weak pound means for your money - from petrol prices and beer, to holiday cash and new iPhones.
Holiday money
A drop in the pound's value is a blow for anyone buying holiday cash now as you'll get fewer dollars for each sterling you exchange.
If the value of the pound versus the dollar is $1.05/£1 then for every £100 you change up, you get £105 dollars.
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Sterling has also fallen against the euro in recent weeks and currently £1 is worth €1.12. That's compared to €1.19 two months ago.
A currency is weak if it is lower in value than other foreign currencies and gives you a poorer value when you exchange it.
An exchange rate is how much your pounds will be worth in a foreign currency.
A weak pound means when you're spending money abroad it might be more expensive, compared to when the pound was stronger.
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There are some steps you can take to make your travel money go further.
For instance there are specific debit and credit cards designed for using abroad, which won't charge you for each transaction like a standard card will.
And compare travel money companies online, including the rates and any fees to find the best deal.
Meanwhile you'll want to avoid paying for travel money with a credit card – it’s likely you’ll be charged a cash withdrawal fee which adds to the cost.
Petrol
The weak pound in recent months has already started hitting drivers in the pocket, despite petrol prices falling.
Petrol prices dropped to below 166p a litre for the first time since May on Wednesday which is good news for drivers.
But oil is priced in dollars and the pound has weakened in recent months.
It means drivers are paying almost a fiver more for a tank of fuel compared to what they would have if the pound was at its February level of $1.35, according to the AA.
Luke Bosdet, the AA's fuel price spokesman, said: "The weaker pound very bad news for motorists."
It makes it more important than ever to check you're getting the best price for your petrol - here's how to find them near you.
Beer
The boss of Carlsberg Marstons, Paul Davies, has warned the fall of the pound could cause a rise in beer prices for UK customers.
He told BBC Radio 4's Today programme that the drop was "worrying" for the British beer industry, because brewers import hops from overseas.
When asked if the value of the pound mattered, Mr Davies said: "Yes it does, many of the hops used in this country are actually imported and a lot of them, particularly for craft brewers, are imported from the States, so changes in currency is actually worrying for industry, for sure."
Beer prices are already on the rise, but it will be up to brewing firms if they will pass the increased costs of making beers on to customers just yet.
iPhone
The weakening pounds means you're likely to pay more for a new iPhone than you would have if the currency was stronger against the dollar.
The price of the new iPhone is already up to £150 more than the previous model.
The new iPhone 14 Pro is £1,099 but last year you would've paid £949 for the equivalent iPhone 13 Pro.
For the iPhone 14, up on the £779 last year's iPhone 13 cost – a £70 rise.
Other goods
In the coming weeks shoppers are likely to face higher prices on a range of items because British companies import goods in dollars.
Some firms, especially larger firms, may choose to absorb the costs but others will pass that price on to shoppers.
This is said to particularly affect electronics - as well as fashion and ingredients.
On the other hand, it's likely to become cheaper for UK businesses to export abroad.
A cheaper pound means that buying from the UK becomes cheaper for other countries.
It also makes the UK more attractive to investors as they get more bang for their buck, and could give the economy a boost.
Mortgages
Several lenders have pulled some of their mortgage products because the rocky market conditions from a plunging pound.
That's because they are unable to price some mortgage rate offers.
Tax cuts were announced last week by Chancellor Kwasi Kwarteng.
Much of this was unfunded and needs to be financed through issuing gilts. Changes to the gilt market impact swap rates, which lenders use to make pricing decisions.
The fall in the pound is also expected to push inflation higher, and the Bank of England (BoE) is then likely to respond to higher prices by hiking interest rates.
A rate hike by the BoE is usually passed on by banks to customers in the form of higher borrowing costs, including loans, credit cards and mortgages.
At the moment, the BoE has ruled out emergency rate rise but it might raise rates again next time - which could see repayments go up.
Some two million people in the UK on a tracker or variable rate mortgage could see their monthly costs going up even further if rates go higher.
While the majority of mortgage holders are on fixed-rate mortgages, 1.8 million of these deals are set to end in the next year – meaning some homeowners could be in for a bill shock when they do eventually come to take out a new mortgage.
Borrowers are rushing to lock in fixed deals as early as possible to avoid future rate hikes.
The Bank of England increased rates by another half percentage point to 2.25% last Thursday and could take action at its next scheduled meeting on November 3.
Here's what you need to know about getting the best deal on your home loan.
Pensions
A weak pound is expected to push inflation higher and that can hit your pension savings.
Higher prices mean your pension income might not stretch as far if you're already accessing you cash.
Anyone without an inflation-linked annuity, or about to buy an annuity for retirement may find their money is worth less too.
Meanwhile those still working might be tempted to stop their contributions to pensions savings, so they have more cash to spend.
But this should be a very last resort, as you'll be worse off in retirement.
Exactly how you could be affected depends on how close to retirement you are.
Romi Savova, chief executive of retirement platform PensionBee and part of The Sun's Squeeze Team, explains it all.
Energy bills
Energy bills are under further pressure from a weak pound.
Despite wholesale gas and oil prices falling from recent record highs, the market is priced in dollars and so we face paying more from the supplies we get from abroad.
Households won't see their energy bills rise though as bills are capped for two years under the government's new Energy Price Guarantee.
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From October 1 the average dual fuel household energy bill will be capped at £2,500, though the exact amount you pay can still be higher or lower depending on usage.
Here's the exact amount households will pay for energy based on size of home under the EPG.
