After plunging to a record low against the US dollar overnight, sterling recovered some of its losses on Monday but still remained near to a historic lows. Its latest tribulations follow a long decline in value against a broad basket of currencies that began in mid-2015.
The weakening pound creates winners and losers among businesses. For exporters, including some manufacturers, the makers of world-famous products such as Scotch whisky, and attractions favoured by foreign tourists, a weaker pound can be a boon.
However, the UK tends to run a trade deficit, importing many of the products and commodities used by businesses. The devalued pound means those companies face higher input costs – potentially adding to the UK’s inflationary problems.
For businesses, the reaction to a falling pound depends on which side of the dividing line they fall.
Oakham Ales, a craft brewer in Peterborough
Oakham Ales was one of the first UK brewers to source hops from America, seeking bolder, punchier flavours.
It proved a wise decision, catching the zeitgeist as consumer tastes changed. Citra is now a common ingredient in the mash tuns of Britain’s craft brewers and Oakham’s own award-winning Citra ale is sold in supermarkets such as Tesco and Morrisons.
The fall in value of sterling poses a threat to that success story.
“It’s a proprietary hop, which means we have to buy direct from one of the big American hop companies,” said Oakham’s spokesperson, Nick Jones. “There’s no option on that, we have to buy in dollars, so obviously the pound plunging is a big problem for us.
“We were already expecting US hop prices to go up significantly because production is energy heavy. Now we’ve got this on top of it.”
Oakham was buying about 24 tonnes of Citra a year before the pandemic, meaning it stands to take a big hit from sterling’s weakness.
“Even if the Bank of England acts to protect the pound, that’s going to affect consumer spending,” Jones said. “We’ve absorbed the costs and the point might be coming where we can’t absorb any more.
“We won’t be the only brewer who would say that. It’s hugely challenging. Having survived Covid and built ourselves back up, to be confronted with this on top of energy costs, it’s a major concern.”
Brandauer, a metal stamping company in Birmingham
For businesses whose exports are more valuable than their imports, it is a different story. The metal stamping company Brandauer, which turned 160 years old in March, sends products such as razor blades and components for electrical devices like kettles all over the world.
“At the minute, it’s upside for us,” said the the Brandauer chief executive, Rowan Crozier. “It’s quite a good opportunity for us at the moment.”
A weaker pound does mean Brandauer has to contend with a rising cost of imports from China (paid for mainly in US dollars) and Europe (paid in euros), but on balance it benefits Crozier’s business.
“Dollar-pound, with where it is, it makes us look cheaper,” he said. Sterling costs, such as paying its 69 employees and running the factory, are the bigger part of the cost of Brandauer’s products than imported commodities.
Crozier is alert to the negative implications of a weak pound as well. If the currency remains near historically low levels it would probably contribute to increased inflation in the UK, which would in turn potentially force the Bank of England to raise interest rates faster than otherwise, making borrowing more expensive.
Exports are a fundamental part of Brandauer’s business – it won a Queen’s Award for international trade in 2019 – so it monitors exchange rates all the time. It tries to protect against volatility by keeping separate accounts denominated in sterling, dollars and euros, spreading its currency risk, while it also uses derivatives from its bank to insure against foreign exchange moves.
