ALTHOUGH a slowdown in high street spending was bound to happen at some stage, another dimension to our faltering economy might only become apparent when the summer arrives.

Globe-trotting Brits who have roamed the world with a strong pound could soon have their wings clipped. Car hire on the Costas, meals in Greece, and fine wines in Burgundy will all cost more if sterling continues to slide.

Smart travellers have been playing currency games for months: when M&S Money promised two dollars to the pound in November, demand soared 40 per cent. Those buyers already sit on sizeable gains -with a pound today buying around $1.88.

Alliance & Leicester says British holidaymakers spend £34.4bn a year on trips abroad, of which £23.3bn is spent overseas.

Foreign exchange - cash and travellers cheques - accounts for between £12bn and £15bn of that.

The average cost of a holiday abroad, says A&L is £514, or £2,056 for a family of four. Over a lifetime, we spend an average £41,600 each on holidays.

Buoyant spending on travel - which A&L hopes to boost with personal loans from 6.7 per cent, standard rate 7.4 per cent - will be squeezed as the pound sinks against the euro and other currencies such as the Australian and New Zealand dollars.

Sterling is on the ropes, battered by a current account deficit of perhaps £68bn last year. Our interest rates are falling while Europe's hold steady.

"If you're looking for a currency that's got a stable, effective exchange rate, you couldn't do better than look at sterling," said Mervyn King, governor of the Bank of England, in November.

Since then, the effective exchange rate has plunged six per cent - and the Financial Times is warning: "Sterling may still fall a great deal further."

Against the dollar, sterling peaked late last year at $2.11 - more than 50 per cent up on mid- 2001, and higher than at any time since 1981. Now speculators fret about our heavily-indebted economy and fragile housing market.

Trevor Williams, chief economist at Lloyds TSB Corporate Markets, says: "The pound could go as low as $1.80 - weak from where it was, but historically not that weak."

A weak pound is good for British exporters, painful for British travellers who can't fill up their cars with groceries before they head for Europe.

Dimitri Patrikios of Ionian Island Holidays, selling holidays in the Greek islands says: "In February last year, the pound peaked at 1.52 euros. Today, it is 1.32 euros, and could be 1.23 euros in the summer.

"That's a 20 per cent fall in spending power. We suggest to hoteliers and villa owners that they drop prices by five per cent to keep the Brits coming. But some will fill up with euro-spending visitors, who will see little changes in price since last summer."

To rub salt in the wound for British travellers, the eurozone got bigger at the start of the year, when Malta and Cyprus joined in.

Says Helen Warburton, Post Office head of travel services: "The Cyprus pound and Malta lira are two of our top ten currencies and last year's sales put them in the ten fastest growing demand among our customers.

"We hope prices will not rocket, as they did in 2002 for the original euro currencies. Spain, once the bargain basement of Europe, now has the highest living costs in the eurozone."

So long as sterling weakens, it obviously makes sense to buy holiday money now. Few suppliers still charge commission - so consumers shop around to get the best conversion rate.

Says Trevor Williams at Lloyds TSB: "Travellers planning to go abroad should buy now. When you have a strong currency, as Britain had last year, it tends to make you less competitive. When the current account deficit widens, the currency tends to fall back."

Although the Post Office is reckoned to hold a 28 per cent slice of the foreign currency/travellers cheques market, with M&S Money in second place (13 per cent), tour operator Thomas Cook, newly-quoted on the Stock Market, is beefing up financial services this year.

The Thomas Cook credit card, launched with Barclaycard last October, offers instant credit instore and zero per cent interest on all purchases for the first three months.

The tour operator is also scrapping its cash-handling fee on holiday money purchased in Thomas Cook stores and has brought its credit card into line with rivals Nationwide and Liverpool Victoria, which don't levy a foreign exchange fee (typically 2.75 per cent) on purchases and cash withdrawals made abroad.

On a £2,000 holiday booking with £1,000 spending money, Thomas Cook reckons customers could save £175.42 - roughly a six per cent saving. Fraser Millar, M&S Money travel manager, remains cautious. He said: "Nine years into the euro, the market is still highly volatile in terms of what consumers choose to do.

"We might see strong early buyers of euros this year, but consumers must make their own judgment on where they see relative value. We simply make sure our rates are among the most competitive in the market."