Pound to euro exchange rate – sterling rises after Bank of England announced potential hike in interest rates
The Bank has indicated that rates could rise for the first time in more than 10 years to help businesses and consumers
STERLING has continued its strong performance against the euro - up 0.11 per cent at 1.1385 this morning - days after the Bank of England revealed it may act to curb inflation by hiking up borrowing costs.
The Bank warned on Thursday that interest rates were soon likely to rise for the first time in more than a decade to combat rising costs for businesses and consumers.
What has happened to the euro conversion rate in the last few months?
The pound has seen a decline of almost 9 per cent against the euro since April this year and 12 per cent since the Brexit vote.
Recently the sterling rate has remained below €1.08 - last reached in October 2009 - as fears around Brexit negotiations grow and relationships in the Pacific become fraught.
A recent rally on the currency comes after data from the Office for National Statistics (ONS) showed the Consumer Price Index (CPI) measure of inflation hit 2.9 per cent in August, outstripping economists' expectations of 2.8 per cent, thanks to higher clothing and fuel prices.
This has fuelled speculation that the Bank of England could hike interest rates to cool down consumer spending and combat rising prices.
Meanwhile, analysts think traders are awaiting signs of better relations in Brexit talks before upgrading the pound against the euro, as they think there will be more pressure for the pound in the short term.
Experts had predicted the pound and euro would hit parity by next year, with US bank Morgan Stanley revealing it would be the first time the currencies would be at equal value in the single currency's 18-year history.
Where is the best place to get euros?
Euros can be bought at supermarkets, the Post Office and currency specialists - but rates vary massively.
The best rates can often be found at specialist online outlets, such as Travelex, which will deliver your cash directly to your home.
Alternatively, FairFX offers currency cards which you can load up with sterling and then spend abroad like a debit card.
Travellers can use comparison sites, such as MoneySavingExpert's TravelMoneyMax, to find the best rate.
If you order in advance and pick up the cash then you'll most likely get a better rate than if you walk in.
You can also buy last-minute currency at the airport, but expect to be hit with poor rates.
It's almost always much cheaper to buy your currency before you get to the airport.
The rates you'll see above are the "spot" currency rate that is traded on the market.
These are different to the rates offered by currency exchange businesses, but changes in the spot rate do have an effect on how much cash you get.
How to get the best holiday money rate
WE spoke with Hannah Maundrell, editor-in-chief at money.co.uk, to find out how you can guarantee the best rate when you go on holiday
- Don’t buy cash at the airport – you’ll always be able to beat the rate with a bit of forward planning
- Compare travel money companies online – Factor in delivery costs and choose the option that gives you the most cash to spend on holiday. If you’ve left it until the last minute order online for airport collection so you get the best of both worlds.
- Use comparison tools – MoneySavingExpert’s TravelMoneyMax enables you to compare pick-up and pre-order rates.
- Don’t pay for travel money with a credit card – it’s likely you’ll be charged a cash withdrawal fee which adds to the cost.
- Top up a prepaid card to lock in your rate now – Choose your card and read the T&Cs carefully as some apply hefty fees. WeSwap, FairFX and Caxton FX are all worth checking out.
- Always choose to pay in the local currency rather than sterling – This will help you avoid sneaky exchange fees
What is the Bank of England interest rate?
The UK interest rate – known as the "base rate" – is set by the Bank of England for lending to other banks, which is why it is used as the general benchmark for interest rates.
It may affect interest you pay on loans, or receive on savings accounts. The BoE’s monetary policy committee (MPC) sets rates and has said previously that it’s in no rush to push them up.
But many economists have said that rocketing inflation could put pressure on the BoE to take action and hike rates.
Low interest is good for borrowers and bad for savers, while the reverse is true of high interest rates.
Last August in the wake of the Brexit vote, policymakers voted to cut interest rates from 0.5 per cent to 0.25 per cent.
The move aimed to stimulate economic growth by making loans more attractive and encouraging people to spend.
How do interest rates affect the pound to euro exchange rate?
Reducing interest rates makes it less attractive to save money in the UK, meaning the value of sterling can fall as a result of reduced demand.
Sterling dipped after the Brexit vote because financial markets - and the investors who operate in them - don't react well to uncertainty.
When sterling is worth less, as it has been since the historic vote on June 23 last year, imports are more expensive.
However, a weak pound has boosted exporters, and benefited many of the big UK-listed companies which make profits in US dollars.
This is why the UK stock market has climbed in the months following the vote - essentially, big foreign companies are getting more bang for their buck and making more money as a result.
What other things affect the pound to euro exchange?
Foreign exchange rates are constantly changing, largely as a result of economic factors.
It can be affected when the Office for National Statistics reveals inflation rates or when employment figures are announced.
The pound is also sensitive to political changes and uncertainty, for example, during the EU referendum.
