Why European Central Bank action is good news for UK holidaymakers

Printing money should boost the pound's value against the euro.

The European Central Bank (ECB) has announced it is going to inject billions of euros into its struggling economy.

But what does that actually mean? And why could it mean good news for British holidaymakers?

What is the ECB doing?

The ECB is starting up a programme of quantitative easing (QE). This is where it essentially prints new money, which can then be used to buy up certain assets. In this case, the ECB will be buying up government bonds worth €60 billion (£45.48 billion) per month until the end of September 2016.

It’s acting now because of low inflation in the eurozone. In fact last month inflation became deflation, with prices actually dropping. And that’s bad news for European governments as it means the income from VAT falls.

The idea is that by pumping money into the eurozone like this, banks will be more likely to lend and the man on the street is more likely to spend, thereby boosting the economy.

That’s essentially what happened in the UK when the Bank of England began its own QE initiative a couple of years ago. Since then, borrowers have enjoyed mortgage rates falling to new lows, while the economy has improved. Though it's worth noting that critics suggest this would have happened anyway, irrespective of the Bank of England printing new money.

Time to buy Euros?

Another impact of QE is that it can weaken the domestic currency. That’s not necessarily a bad thing from the ECB’s perspective, as a lower-valued euro would boost exports and lift inflation.

It would also provide a boost to holidaymakers looking to hit European shores for their break this year.

The pound has strengthened against the euro over the last month, which a number of analysts have put down to the general expectation that some form of stimulus was inevitable.

On 2nd January, £1 was worth €1.2772. By 20th January this had jumped to €1.3117, and it’s being pushed ever higher since the ECB made its announcement. That’s because the markets didn’t expect so much cash to be created, so they are selling euros heavily.

Getting the most for your money

As the pound strengthens against the euro, that means that you can get more holiday money when exchanging your sterling. Great news if you’ve got a trip to the continent booked up, or are planning on booking one.

But you can boost that spending money balance even more.

Always avoid changing your money up at the Post Office, at travel agents or at high street banks. They dominate the currency exchange market, but offer the worst rates. Instead you should try one of the numerous online currency exchange firms.

Here’s what £500 would get you, at the time of writing:

Sources: My Travel cash/bank websites

Delivery fees vary depending on how much you change up and where you want it to be delivered. Smaller sums may incur a fee for example, which Halifax only charges to deliver to your address – you can pick it up for free from your local branch.

Need to send large amounts of money overseas? Take a look at the market-leading rates on offer in our international money transfer centre

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