British consumers are facing further price hikes after the pound fell to an all-time low against the dollar, exacerbating the cost of living crisis. The value of the pound plummeted after Kwasi Kwarteng’s mini-budget.
A weaker sterling means imported groceries, petrol, cars and consumer goods will become more expensive as companies pass price increases on to consumers. It will also drive up the cost of mortgages and overseas vacations.
food, drink and clothing
According to the British Retail Consortium, UK supermarkets import around 40% of their groceries. So, the depreciation of the pound means that food prices are likely to rise, further contributing to the cost of living crisis.
Kris Hamer, Director of Insights at the BRC, said: “It is inevitable that if these pressures continue, some of the cost will have to be passed on to consumers in the form of higher prices.”
As the pound sterling dropped sharply in early trade on Monday, the Belfast restaurant posted Morne Seafood tweeted: “Well, those are the California wines from the wine list.”
Across the hospitality industry, bars, restaurants, importers and producers had similar thoughts as they digested the impact on US and European imports. “It’s clear that anything that’s imported and paid for in dollars or euros has only gotten more expensive,” said Bob McCoubrey, owner of Morne Seafood.
However, there’s a lot more at stake than Napa Valley Zinfandel being on the wine list.
Miles Beale, chief executive of the Wine & Spirit Trade Association, said: “One in five wines imported into the UK and bottled here are US wines. Sterling’s crash will push up prices for consumers and put hundreds of British jobs at risk at bottling plants across the UK.”
Those who buy products from the US to resell may choose to stock something else, but some manufacturers face much greater challenges.
Peterborough-based Oakham Ales prides itself on its Citra Ale, made from the US hop of the same name. It has no choice but to buy in dollars and must now either pass the cost on to consumers – and risk making them resist the price – or take the pain and take a major financial hit.
“It’s just one shock after another,” Oakham spokesman Nick Jones said, lamenting the recent strain in the wake of the pandemic and rising energy costs.
Non-food retailers import more of their goods than supermarkets, meaning prices of clothing and other essential items are also likely to rise.
oil and petrol
A weaker sterling could mean an extra £7.50 to fill up an average family car, according to the AA.
Wholesale oil markets are priced in dollars, which means that each barrel of oil will become more expensive for anyone buying in pounds, like e.g. B. British petrol stations.
Fuel prices have fallen from a record high of 191.53 pence a liter at UK petrol stations following the Russian invasion of Ukraine, but the AA said the easing in wholesale prices is being partially offset by the sterling’s nosedive.
The AA calculated the likely impact on prices at the pump compared to Feb. 24, the last time Brent crude was below $90 a barrel. Sterling’s fall from $1.35 to $1.07 since then, they say, is reflected in pump prices of more than 14p a liter, or £7.50 for a 55-litre tank once VAT is factored in .
Ultimately, while major transport and logistics companies have hedged their fuel costs, higher costs mean higher prices for all consumers.
cars and electronics
Technology and manufacturing products imported from other countries are likely to be affected by price increases, as are UK-made goods if parts and machinery are imported from abroad.
The latest US government figures show that the US exported $69.1 billion worth of goods to the UK in 2019, with the main categories being precious metals and stones, aircraft, mineral fuels and machinery.
Consumer electronics and manufacturing technology, such as factory equipment, are likely to be affected because those items rely on trade in U.S. dollars, the Institute of Export and International Trade said.
Marco Forgione, Director General of the IEIT, said: “Current pressures on the pound are likely to hit consumers hard as the cost of imported goods rises.”
The Bank of England is expected to hike interest rates further in response to the weakening pound, with financial markets on Monday forecasting interest rates could nearly triple to 6% next year.
The 2.2 million people with adjustable rate mortgages will feel the impact immediately if interest rates continue to rise. Fixed-rate mortgages will also be affected, as around half will expire in the next two years. Lenders including Virgin Money and Skipton Building Society temporarily suspended mortgage deals to new customers Monday due to volatility in financial markets.
A weaker pound makes holidays more expensive and UK travelers will find their money doesn’t last as far abroad.
Holidaymakers exchanging their sterling for dollars or euros are getting less than they used to. For example, the Post Office offers an exchange rate of 1.0247 for pounds to dollars, which means you would get $410 for £400.
Other holiday destinations like the Bahamas and Barbados are also pegging their currencies to the dollar, so visitors to those countries will also be affected.
The weaker pound could also push up flight prices as airlines have to pay more for fuel.
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