Britons On Holiday In Eurozone Tipped To Take A Pounding As Parity Approaches

Britons On Holiday In Eurozone Tipped To Take A Pounding As Parity Approaches

British holidaymakers should brace themselves for more Brexit pain when they change their pounds into euros, with Morgan Stanley forecasting the currencies are on the way to parity.

The pound is currently trading at 1.09 euro after collapsing from 1.31 euro the day before Britain voted to quit the European Union in June.

This has meant Brits holidaying in the likes of sunny Spain and Italy have had their spending power obliterated, which has resulted in more people than usual opting for "staycations" in Britain, despite it being afflicted with poor summer weather.

Now the US investment banking giant believes the dilapidated British currency has further to fall and is pencilling in pound-euro parity in the first quarter of 2018, when £1.02 will buy just one euro.

It would signal the first time in its 18-year history the euro has reached parity with sterling.

Piling on the misery, Morgan Stanley described Britain's economic prospects as "bleak" as it heads for what appears to be a calamitous exit from the EU, with Tory ministers unable to provide clarity on their vision for life outside the bloc.

Michael Gove, Boris Johnson, Philip Hammond, Liam Fox, Chris Grayling and Prime Minister Theresa May herself have given contradictory statements about Conservative plans for trade, customs, tariffs, immigration, air control, a transition period and countless other facets of Britain's divorce.

"The UK economic outlook looks bleak, with stretched household balance sheets, Brexit negotiation uncertainty potentially weighing on business investment, and net exports growth staying subdued despite a weak pound.

"On the politics front, risks have also increased, with the Conservative Party showing split opinions on the UK's Brexit position, revealing inner party tensions," Morgan Stanley added.

In contrast, the eurozone is on the up, with its economy expanding twice as fast as the UK in recent months.

The pound's collapse has been used by Brexiteers to herald a new dawn of trading that would span beyond Europe.

However, official figures on Thursday showed the trade deficit widened as a boost to UK trade again failed to materialise.

Morgan Stanley also pointed to Britain's "unsustainable" debt levels holding back growth, and investment evaporating in the wake of Brexit.

"The household sector has increased spending, primarily funded by unsecured lending, which is unsustainable.

"A consolidation of the household balance sheet, coupled with negative real wage growth, may reduce consumption, which has been propping up growth so far.

"Brexit uncertainty may also weigh on business investment, which will weaken the already lacklustre productivity growth outlook, suggesting real rates staying low."

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