The Mallorcan tourist industry is deeply concerned at the crash in value of sterling against the major world currencies. This morning sterling was 0.7% lower against the euro at 89.97 pence per euro. The euro earlier rose as high as 92.6 pence, its highest in two years.
The tourist industry fears that it will hit the spending power of British holidaymakers who are already considered to be the biggest spenders. And it is not only the tourist industry. The real estate market is also concerned with the price of a home in Mallorca substantially higher for sterling buyers. People who live on the island but who receive an income in sterling will also be hit.
The currency plunged as much as 4.85% to $1.0327 in thin Asia trading, extending a 3.61% dive from Friday, when finance minister Kwasi Kwarteng unveiled historic tax cuts and the biggest increase in borrowing since 1972 to pay for them.
Economists and investors said Prime Minister Liz Truss's government, in power for less than three weeks, was losing financial credibility in unveiling such a plan just a day after the Bank of England hiked interest rates to contain surging inflation.
"Markets have a tendency to overshoot and I wouldn't overinterpret the fall this morning," Kit Juckes, head of currency strategy at Societe Generale in London.
"But there are two points: one is the loss of confidence in UK fiscal policy and that won't help sterling. The second is that the mini-budget has allowed sterling to be the short of choice against the dollar".
Marc Chandler, chief market strategist at Bannockburn Global Forex, called the currency's record plunge "incredible".
"The weekend press tarred and feathered sterling with assertions of its emerging-market status," he said.
"I don't buy that schadenfreude. Still, there is now bound to be speculation of an emergency BOE meeting and rate hike."
Kwarteng's announcement marked a step change in British financial policy, however, harking back to the Thatcherite and Reaganomics doctrines of the 1980s that critics have derided as a return to "trickle down" economics.
The so-called mini budget is designed to snap the economy out of a period of double-digit inflation driven by surging energy prices and a 15-year run of stagnant real wage growth.
In total, the plans will require an extra 72 billion pounds of government borrowing over the next six months alone.
British government bond yields surged by the most in a day in more than three decades on Friday, with yields on the five-year gilt - one of the most sensitive to any near-term shift in interest rate or borrowing expectations - up by half a percentage point.
"In this environment, you either need to see much higher growth - which isn't happening at the moment - or you need to see significantly higher bond yields to incentivise capital inflows. To get bond yields up to those levels, you need to see the BoE coming out and doing an emergency hike," said Chris Weston, head of research at Melbourne-based brokerage Pepperstone.
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Yes keep a close check on Quesy Kkwarty' s next Budget coming soon.
John PittsYour argument is based on the presumption that "Mediterranean" economies are utterly dependent on tourism. And past narratives seem to believe it's primarily British tourism that keeps them afloat (this is not an unusual presumption for Brits, because British tourism is generally all they're aware of). With respect to Spain, all tourism accounts for about 12% of the economy. British tourism accounts for about 25% of that (in good times), so, about 3%. In the highly unlikely event that would decline by half because Brits feel inconvenienced, or simply can't afford it anymore, we're looking at a highly unlikely 1.5% loss. I say highly unlikely, because Brits are addicted to Spain, unless of course the UK economy goes completely pear shaped and Brits just can't afford anything, which is possible, but I suspect the government may get kicked out (again) before it comes to that. So, would you take emergency measures to avoid an unlikely 1.5% decline from an unlikely loss of British tourism? Or simply focus on expanding market reach to more lucrative markets? It may displeasure you that you're experiencing more difficulties than others, but I suspect there's larger, more global economic risks that deserve more urgent attention.
Zoltan TeglasTotally agree but as Spain didn't ask for it, I hope they can find a way to reduce the financial impact of it. EU law is really only EU law when a member is happy to follow it. I suspect the tourist based mediterranean economies will find a way around the 90 day rule in time (the golden visa scheme is already an example of this)
John PittsAnd let's face it, it's the moronic conservative government that has caused the 90 day Brexit disaster. Spain didn't ask for this. And I believe it's a EU law so it won't be changed anytime soon.
John PittsApart from a small number of extremists no one has said Mallorca doesn't want tourists. That's the sensationalist British press with their usual nonsense about nasty 'foreigners' being horrible to Brits. What politicians have been saying, correctly in my opinion, is that the current model of mass tourism is not sustainable. You cannot have a continuous growth in numbers on a small island. So the only way is to have less tourists spending more, as you've said. It's unfair on the decent tourists who don't happen to be well off but I can't see any other solution.
John PittsNot really. In the unfortunate event that many Brits could no longer afford hols abroad (or spend more than 90 days in their holiday flat), the overall impact would be relatively minor. In a good year, Brits represent about 25% of the tourist market, and let's say British tourism drops by half due to the dwindling British economy (that decline would be highly unlikely), then yes, it's significant, but hardly existential. And again, unlikely. Besides, there's far more others who can and will, so it seems the wiser choice would be simply to focus on those that can and will, rather than those that can't and/or won't.
Morgan WilliamsI think you’ve agreed with me? Attract the wealthy who will spend the same (number of euros) regardless of the exchange rate. This predominantly means holiday home owners who will and can come regularly and spend well. But the 90 day rule is reducing visits for many now and so an easy win for Spain would be to find a way around this rule.
John PittsExchange rate? Most tourists here use the same currency. In the situations where they don't, it's pegged to the Euro anyway. Britain is the one with that problem. You may not have noticed, but Brits account for about 25% of tourism (on a >good< year). Let's say things go really pear shaped for Britain. That might cut British tourism in half, a whopping loss of 12-13% (significant, but hardly existential). And that's overwhelmingly limited to British resorts, which are generally the cheaper downmarket places anyway. That explains a lot about how "quality over quantity" works, because there's plenty out there seeking quality rather than quantity. And many of those are just beginning to realise how grown up Mallorca is becoming. Really, nobody's shaking in their boots (except maybe a few British pubs in shagaluf). Don't worry, there's always Benidorm or Torremolinos. Or Blackpool or Brighton (if the exchange rate and British economy tank further) .
I was under the impression (from the demos, graffiti, tourist tax etc) that Mallorca didn't want tourists anymore. So surely this is good news? Alternatively, go after the higher income visitors who wont care about the exchange rate and will spend more freely than the package holiday tourists i.e. the holiday home owners. The 90 day rule is limiting their time here and thus reducing their annual spend. Whatever one's view of Brexit (which is now done and in the past), not finding a way around this is an act of financial self harm for Spain
It's unfortunate that Britain has done this to itself, and no doubt several dots around the island will be concerned about it. The upside is that there's plenty of others who can still afford Mallorca hols (and are generally less problematic tourists). For the handful still dependent on British tourism, it's finally time to shift and broaden your marketing horizons. Still, the writing has been on the wall for a long time... ...should have done it a long time ago. Others did, and are now far less vulnerable.