‘Shock after shock’: How the weaker pound could affect you | Sterling
UK consumers are facing further price hikes after the pound fell to a historic low against the dollar, deepening the cost of living crisis. The value of the pound fell following the Kwasi Kwarteng mini-budget.
A weaker pound means that imported food, petrol, cars and consumer goods will be more expensive as businesses pass on price increases to consumers. It will also drive up the cost of mortgages and holidays abroad.
Food, drink and clothing
UK supermarkets import around 40% of their food, according to the British Retail Consortium, so the fall in the value of the pound means food prices are set to rise, further contributing to the cost of living crisis.
Kris Hamer, director of knowledge at BRC, said: “It is inevitable that unless these pressures ease, some of the costs will have to be passed on to consumers in the form of higher prices.”
As the pound registered sharp falls in early trading on Monday, the restaurant in Belfast Morne Seafood tweeted: “Well, these are the Californian wines on the wine list.”
In the hospitality industry, bars, restaurants, importers and producers had similar thoughts as they digested the impact on US and European imports. “Clearly anything imported and paid for in dollars or euros has become more expensive,” said Morne Seafood owner Bob McCoubrey.
However, there is much more at stake than whether Napa Valley Zinfandel makes it onto the wine list.
Miles Beale, chief executive of the Wine & Spirit Trade Association, said: “A fifth of all bulk wine imported into the UK and bottled here is American wine. The crash in the pound is expected to raise prices for consumers and threaten hundreds of British jobs in UK bottling plants.
Those who buy products in the United States to resell may choose to store something else, but some producers face much greater challenges.
Peterborough-based Oakham Ales prides itself on its Citra beer, made from the American hops of the same name. He has no choice but to buy in dollars and must now either pass the cost on to consumers – and risk them balking at the price – or absorb the pain and take a major financial hit.
“It’s just shock after shock,” Oakham spokesman Nick Jones said, lamenting the latest burden, after the pandemic and soaring energy costs.
Non-food retailers import more of their products than supermarkets, which means the price of clothing and other essentials is also expected to rise.
Oil and Gasoline
A weaker pound could mean an extra £7.50 on the cost of filling an average family car, according to the AA.
Wholesale oil markets are priced in dollars, which means that each barrel of oil becomes more expensive for anyone buying in pounds, like UK petrol stations.
Fuel prices fell by a record low of 191.53p a liter on UK forecourts following Russia’s invasion of Ukraine, but the AA said the drop in wholesale prices was partially reversed by the fall of the pound sterling.
The AA calculated the likely impact on pump prices from Feb. 24, the last time Brent crude was below $90 a barrel. The fall of the pound from $1.35 to $1.07 since then, they say, is impacting prices at the pump by more than an additional 14 pence per litre, or £7.50 for a 55 tank litres, once VAT has been taken into account.
While large transport and logistics companies will have covered their fuel costs, higher costs ultimately mean higher prices for all consumers.
Cars and electrical appliances
Technological and manufacturing products imported from other countries are likely to be affected by price increases. Goods made in the UK could also be affected if parts and machinery are imported from overseas.
The latest figures from the US government show that in 2019 the US exported $69.1 billion worth of goods to the UK, the main categories being precious metals and stones, aircraft, mineral fuels and machines.
Consumer electronics and manufacturing technologies, such as factory equipment, are likely to be affected, as these items depend on trade in U.S. dollars, the Institute of Export and International Trade said.
Marco Forgione, chief executive of IEIT, said: “The pressure on the pound at the moment is likely to hit consumers hard as the cost of imported goods rises.”
The Bank of England is expected to raise interest rates further in response to the weaker pound, with financial markets predicting on Monday that the base rate could nearly triple to 6% next year.
The 2.2 million people who have adjustable rate mortgages will immediately feel the impact if interest rates continue to rise. People with fixed-rate mortgages will also be affected, as around half are due to expire within the next two years. Lenders including Virgin Money and Skipton Building Society temporarily withdrew mortgage deals for new customers on Monday due to financial market volatility.
A weaker pound makes holidays more expensive and UK travelers will find that their money doesn’t go as far when abroad.
Holidaymakers exchanging their pound sterling for dollars or euros will receive less than before. For example, the post office offers an exchange rate of 1.0247 pounds to dollars, which means you will get $410 for £400.
Other vacation destinations such as the Bahamas and Barbados also peg their currencies to the dollar, so visitors from those countries will also be affected.
The weaker pound could also drive up flight prices as airlines have to pay more for fuel.