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The collapsing value of the pound in the wake of Britain’s vote to leave the European Union is frightening news for the country’s economy — but great news for Americans itching to plan a last minute summer vacation.
For the past few months we’ve been running a Vox Vacation Index, which figures out which countries are especially good deals right now by combining inflation and exchange rates. It’s a macroeconomic way to answer the question: What country is an especially good deal right now?
The United Kingdom shot up to third place in our Vox Vacation Index on Thursday night after the results of the Brexit vote came in. And, perhaps somewhat less expected, a whole bunch of other countries became better deals, too, as the American dollar has become stronger against the euro.
The last time we checked on Britain, it ranked 11th in our travel index of 48 countries. But with the pound-to-dollar exchange rate now at its lowest level since the 1980s, American dollars will stretch much further in the United Kingdom.
How we made the Vacation Index — and how Brexit made Western European travel a better deal
In absolute terms, of course, a poor country with low wages is almost always going to be cheaper than a country with high living standards. So in basic cheapskate terms, you can still have a cheaper vacation to India than you could to the United Kingdom.
In contrast, our vacation guide assumes that you're going to want to visit different kinds of places over the course of your life. Maybe you'd like to eventually make it to Paris, Rio de Janeiro, Shanghai, and London. This map shows the countries that are offering an unusually good deal right now. Not "is the United Kingdom cheap?" but "is the United Kingdom cheaper than it was a year ago?"
To answer this question, we combine two different pieces of data: the change in the exchange rate and the local inflation rate. For example, right now, $100 will buy about 72 British pounds — 12.5 percent more than the 64 British pounds you could get in June 2015. Inflation, meanwhile, has been low in Britain, hovering around 0.3 percent. So if you pack your bags and head to Britain now, you’ll have 14.1 percent more purchasing power than you did last summer.
Here’s our full index:
Britain is a better deal. And so are countries that use the euro.
The declining value of the pound, in some ways, is expected: economic turmoil often leads to currency depreciation. But one thing we noticed in updating our index in the wake of Brexit is lots of other countries became better deals as well. This is especially true in the European Union.
Take a country like Portugal. When we ran the numbers June 1, we found that American travels in Portugal would have 2.6 percent less purchasing power this summer than they’d had in 2015.
In the wake of Brexit, however, travels to Portugal will have 0.9 percent more purchasing power. Not a giant leap — but certainly good for an extra glass of port (or two) after dinner. You can see that trend in the map below — which shows how far the American dollar stretches now, compared to the start of June. Look at how Western Europe essentially flips from pink (a worse deal than a year ago) to green (a better deal than last June).
The dollar is stronger than the euro — so travel to Europe has become cheaper
Tourism dollars help countries with weak currencies like the UK
You might notice that the countries topping our list of vacation bargains tend to be countries that are going through challenging economic times.
Britain is the most obvious example. There is massive uncertainty about what Brexit will mean for the future of the country’s economy and whether companies there will still enjoy easy access to other European markets.
Elsewhere, Russia's economy is heavily dependent on oil, and so plunging oil prices have dragged down the value of the ruble. South Africa's rand plunged last December after the country's government ousted a widely respected finance minister, and then deteriorated further in mid-May on rumors that the new finance minister, Pravin Gordhan, was about to be arrested (so far it hasn't happened).
The Argentine peso also plunged 30 percent last December after Argentina's new president removed capital controls that had been propping the peso up. This was part of a broader package of economic reforms designed to aid in recovery from the economic mess created by the president's predecessors.
It might feel wrong to travel to countries with weak currencies — like you're profiting from the misery of others. In a sense, you are. But you shouldn't feel bad about it — by visiting you are helping to solve the problem.
Countries benefit when tourists visit and spend money. And countries like the United Kingdom need the most help during periods of economic hardship. Often, an economic downturn means that the locals are spending less money on hotels, restaurants, and other services. A flood of American tourists helps to offset these losses in industries that tend to go through big boom-and-bust cycles.
So enjoy vacation bargain-hunting with a clean conscience.
