The Olympics may still be a few months away, but for savvy holidaymakers there’s never been a better time to visit Brazil than now.
The ongoing recession in South America’s largest economy has seen the real fall in value against sterling by 39% since December 2014, making a visit to Brazil more affordable than a year ago. It means a cool caipirinha in Ipanema’s trendy bars costs £4.50 this winter compared to £6.40 a year ago.
Improving economic conditions in the UK have contributed to the pound outperforming the majority of major currencies in the past year1, according to latest research from Lloyds Bank Private Banking. Over the past 12 months the pound has increased in value against 48 of the 61 currencies analysed.
But while there were also big increases against the Turkish lira (down 24.2% against sterling) and South African rand (down 23.1%), it’s not all good news for holidaymakers. Those looking for an exotic holiday will find some destinations becoming more expensive. The Seychelles rupee has been the top performing currency against the pound over the last twelve months, rising by 11%, while the Maldives rufiyaa is up 4%.
Biggest losers against sterling
24 of the 61 currencies in the survey have declined in value by over 10% against sterling since December 2014.
Four of the ten largest declines against the pound were recorded against African currencies. Declining copper prices due to softer demand from China and a severe electricity shortage are the biggest reasons for Zambia’s kwacha falling by 61% – the worst performing currency against the pound in the past year. The next largest fall was Mozambique's metical (-58%), whilst the South African rand (-23.1%) and the Tanzanian shilling (-19%) make up the other African currencies with the largest loss in value. The Mozambique economy has been hit by falling commodity prices whilst the worst drought in South Africa for over two decades has resulted in water and electricity shortages that have hampered the economy.
After the Mozambique metical the next largest fall in value was the Ukrainian hryvnia (-49%) – which continues to be impacted by the military conflict in the eastern part of the country, falling trade with Russia and a worsening economy. The rouble in neighbouring Russia has fallen by -21% against sterling in the past year on the back of record low oil prices and Western sanctions.
The slump in commodity prices, the slowdown of the Chinese economy, high inflation and deteriorating confidence have all weighed heavily on South American economies, with latest estimates showing that the region's GDP fell by 0.6% annually in the third quarter of 2015. As well as the falling value of the rial, the currencies of neighbouring Columbia (-34%) and Paraguay (-19%) have also fallen sharply. (See Table 1)
Where the pound struggled in 2015
Over the year, the pound fell against 13 of the 61 currencies surveyed. As well as the Seychelles and the Maldives, other long-haul holiday destination currencies that have outperformed the pound include the Trinidad and Tobago dollar (3%) and the Dominican Republic peso (1%).
The Israeli shekel (7%) and the Yemeni rial (4%) are two of the other currencies to have risen in value against sterling during the period. (See Table 2)
Pound against the G202 currencies
The pound outperformed against twelve of the sixteen currencies in the G20 group of economies. Apart from the Brazilian real, South African rand and the Russian rouble, the biggest losers against the pound include the Turkish lira (-24%), the Mexican peso (-14%) and the Canadian dollar (-13%).
The continuing economic weakness in the euro-zone has seen the euro fall by 10% over the period. However against Britain's other major trading partners, the US dollar has grown in value by 4% and the Japanese yen is up by 1% against the pound. The dollar has been supported by a strengthening US economy during 2015; on the other hand, the yen has grown in value even though the Japanese economy has contracted for two successive quarters – marking a technical recession.
Richard Musty, International Private Bank Director at Lloyds Bank, commented:
"Sterling has performed strongly against the majority of leading currencies in the past year. The pound has gained in value against several currencies that have been adversely impacted by falling commodity prices, a weakening economy and the slowdown in the Chinese economy.
"For British holidaymakers looking to travel to countries such as Brazil, Turkey, South Africa or any of the euro-zone countries, this is great news as the pound will go further. However, those looking at exotic holiday destinations, such as the Seychelles or Maldives, will find their stay will be more expensive."