BRIDGETOWN, Barbados, Thursday July 21, 2016 – Just the idea of sitting on a sunny beach on Barbados is likely enough to warm any Brit’s heart. But with the cost of actually making the trip now more expensive for them, following a plunge in the value of the pound sterling on the heels of the United Kingdom’s decision to leave Europe, a dream may be all some can afford.
Analysts say the impact of Brexit on discretionary spending by UK residents threatens the island’s tourism industry, and the implications could reach even further.
Less than a week after the June 23 vote in the UK, Barbados’ Tourism Minister Richard Sealy sought to allay concerns that Britain’s exit from the EU might lead to fall out in arrivals. The UK is the island’s largest source market and Sealy insisted that the Barbados brand is “extremely strong in the UK”.
He expressed confidence that wouldn’t change. The minister even suggested that the pound had always been a “fickle currency”, fluctuating often, and the impact of the dip wouldn’t be as traumatic as many anticipated.
But Bloomberg this week quoted Phil Bloomfield, spokesman with London-based travel search engine Cheapflights, as saying that since Brexit, searches for flights from the UK to Barbados have fallen 15 percent compared with the same period last year. Meanwhile, lower cost destinations such as the Dominican Republic have gained.
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President of the Barbados Chamber of Commerce and Industry (BCCI) Eddie Abed is also not as optimistic as Sealy.
Addressing the Brexit effect in this month’s issue of the BCCI newsletter, he also made the point that a holiday will now cost British visitor. But he highlighted other repercussions as well.
The businessman noted that many real estate purchases in the Caribbean were on hold pending the Brexit vote, and with the outcome, Barbados and other regional countries now have to face the sad reality that some of those sales won’t close.
The Pegging Problem
Group Economist with Royal Bank of Canada Caribbean, Marla Dukharan, further told Bloomberg that a decline in British tourism may push Barbados closer toward the “tipping point”. At that point, she says, people would rush to ditch the Barbadian dollar.
The Caribbean nation’s currency has been pegged to the US dollar at a rate of US$1 to BDS$2 for the last 41 years. For 350 years prior, it was pegged to the British pound. The switch on July 5, 1975 came against the backdrop of the volatility of the British pound which resulted in increased cost of imports.
“If people smell danger, they will probably try to get into US dollars as much as possible,” Dukharan told the publication.
“Consumers in the UK will tend to lower discretionary spending, and expensive holidays to faraway places would likely be trimmed.”
The Central Bank of Barbados notes on its website that protecting the peg has become a central goal for successive governments.
It said Central Bank Governor Dr. DeLisle Worrell would speak extensively on the protection of the dollar in the inaugural issue of a new Central Bank publication, Economic Insight.bb, which will be published later this month.