The recent mini budget has created a lot of unsettlement amongst investors with the result of a drop in the value of the pound, particularly its value against the dollar.
Following the recent appointment of Jeremy Hunt, most of the tax cuts in this mini budget have now been reversed and the pound has recovered slightly, but it still finds itself a staggering -18% weaker against the dollar compared to October last year (accurate for exchange rate at 14:30 on 19.10.22).
If you are a business owner you may be wondering what the effects of this weaker pound will have on your business in the UK; will it be positive, negative or a combination of the two? It can be a worrying situation for many and whether its impact will be positive or negative for you will depend on the type of business you have and how you operate in the market.
To help you understand these effects, we have highlighted what a weaker pound may mean for business owners currently based in the UK:
A weaker pound makes imports more expensive as the exchange rate means the pound doesn’t buy as much currency as it did before its value dropped. Any products or materials sourced abroad are now likely to cost you more.
If you are in hospitality and import food and beverages, run a clothing company purchasing materials from abroad or own any business that currently imports its products or raw materials, then you are likely to see an increase in prices from your suppliers.
A weak pound ultimately makes fuel more expensive. Oil and gas wholesale prices are traded in dollars even if the gas and oil is produced in the UK, and a weaker pound converts to fewer dollars.
Filling up any delivery vehicle with fuel is now going to cost more and this will affect costs for transport companies but also the cost of deliveries to all other businesses.
The UK becomes less attractive to overseas workers when the value of the pound falls. A weaker pound effectively means a decrease in wages for workers paid in sterling, as sending money to their home countries is not worth as much to them as before. As a result, workers from abroad are more likely to seek employment elsewhere. If you rely on overseas staff for permanent or for seasonal work, then you may either have to look at increasing wages to attract workers or suffer the effects of reduced productivity due to the lower levels of staff.
If you run a small to medium business then the rising costs of running your company and the potential drop in sales is likely to create problems with cash flow.
Having less cash in your business will create problems running day to day operations, affecting your ability to survive. Looking at modifying any plans for growth and/or considering raising prices for customers also has the potential to have a negative impact on sales.
A weaker pound alongside the high inflation rates that were already creating rising costs of food, fuel and general living expenses, will be having detrimental effects on everyone - including some of your customers.
If you have a business that sells luxury or non-essential items, you may see a drop in sales as people choose to only buy essential products. Even for those trading in essential items, sales are likely to be reduced as the general population is forced to spend less due to rising costs in almost every area of current living.
The fall in the value of sterling has resulted in interest rates rising. Any loans you may now require to counteract cash flow problems caused by the effects of the weaker pound will cost more to service.
For customers in certain countries, the weak pound makes your products cheaper to customers.
This means if you export to these areas, it will now be cheaper for these customers to buy your products.
The euro, the dollar and lots of other currencies can now get more for their money when they buy from the UK and may be encouraged to purchase more from you, providing you with the opportunity to compete on a more global stage. Now may be the time to take advantage of the weaker pound and market abroad to countries where their currency is stronger.