Cost of a U.S. shopping spree soars as pound collapses to 22-month low against the dollar

A sudden slump in the pound against the dollar means that millions of Britons taking a summer holiday in the States are facing a surge in bills.

The pound has fallen from two dollars to around 1.86 in recent days amid fears for the UK economy.

The net effect has been to push up the cost of taking a holiday in the United States by more than 7per cent on everything from a hotel room to hiring a car or buying a coffee.

Macy's department store in New York in the shadow of the Empire State Building. The weakening of the pound will mean fewer Britons will be flocking to the States for their shopping

Some four million Britons take a holiday in the USA each year, a number swelled by hopes that spending money would go further than last summer.

Many families opted for a sunshine holiday in Florida and other parts of the USA after a fall in the value of the pound versus the Euro put up the cost of going to the Mediterranean.



However, the fact is that the pound is now falling sharply against both the dollar and the euro - making leaving these shores considerably more expensive than a year ago.

The credit card bills landing on the mat following this summer are likely to carry a hidden surprise for holidaying Britons.

Not only has the currency shifted against travellers, but banks have also put up the fees they use for using credit and debit cards overseas.

The news is the latest blow to a nation that is already struggling to meet spiralling 'must pay' bills for food, energy and petrol.

Frances Tuke, of the Association of British Travel Agents, said: 'The fall in the value of the pound against the dollar will be very disappointing for travellers.

'The USA has been a very popular destination this year by virtue of the fact that Sterling was trading at two dollars to the pound.

'Everything has been fine until just the last few weeks. The fall has really been quite sudden and unexpected.'

She added: 'Some people may have bought their currency early, which means they will be okay, but not everyone is that organised.'

Miss Tuke said that it is important to remember that even with the currency shift in recent days, the cost of clothes, electronics and other products is still lower than in Britain.

The pound hit the magic two dollar value in November last year, the first time this had happened for more than 26 years. It triggered a rush of Christmas travel bookings to cities like New York.

Despite the fall of recent days, the pound still has a very long way to go before it reaches a significant low. The figure hit 1.50 dollars to the pound in 1992 after Sterling crashed out of the ERM when John Major was Prime Minister.

The current fall in the value of the pound has been triggered by warnings from the governor of the Bank of England, Mervyn King, that the UK is teetering on the brink of a recession.

International investors like to invest in currencies where interest rates are high or likely to rise. The problems in the UK economy have triggered speculation that the Bank is likely to cut interest rates sharply.

The interest rate banks charge each other to borrow money over a two year period has fallen to 5.33per cent in the last few days, which is the lowest rate since May.

City analysts now believe there is a 50:50 chance of an interest rate cut by November.

Economist Jonathan Loynes said the pound had been knocked by market expectations for a series of interest rates cuts over the next year as the Bank sought to counter slowing growth.

Mr Loynes, chief European economist at Capital Economics, added that the pound had further to fall.

'The bottom line is that the pound's recent drop is part of a fundamental adjustment which we believe has got further to go as the economy's imbalances continue to unwind,' he said.

While the pound's weakness is bad news for those travelling abroad, the strength of the dollar is helping the raft of UK companies which have US operations.

FirstGroup, which owns Greyhound in the US, has seen shares rise in recent days.