‘It’s a major worry’: How two UK firms are coping with the pound’s crash

AAfter falling to a record low against the US dollar overnight, the pound sterling recovered some of its losses on Monday but still remained close to an all-time low. The recent difficulties followed a long slide against a broad basket of currencies that began in mid-2015.

The weakening pound creates winners and losers among companies. For exporters, including some manufacturers, the makers of world-renowned products like Scotch whiskey and attractions favored by overseas tourists, a weaker pound can be a boon.

However, the UK tends to run a trade deficit and imports many of the products and goods used by businesses. The depreciated pound means these companies face higher input costs – potentially contributing to the UK’s inflation woes.

For companies, the reaction to a falling pound depends on which side of the dividing line they fall on.

Oakham Ales, a craft brewer in Peterborough

Oakham Ales was one of the first British breweries to source hops from America for richer, more powerful aromas.

It proved to be a wise decision to capture the zeitgeist as consumer tastes changed. Citra is now a common ingredient in the mash tuns of UK craft brewers and Oakham’s own award-winning Citra Ale is sold in supermarkets such as Tesco and Morrisons.

Sterling’s fall in value threatens this success story.

“It’s a proprietary hop, which means we have to buy directly from one of the big American hop companies,” said Oakham spokesman Nick Jones. “There is no option for that, we have to buy in dollars, so obviously the fall in the pound is a big problem for us.

“We already expected US hop prices to increase significantly because production is energy intensive. Now we have that on top of that.”

Oakham bought about 24 tonnes of Citra a year before the pandemic, meaning it will be hit hard by sterling weakness.

“Even if the Bank of England acts to protect the pound, it will affect consumer spending,” Jones said. “We have absorbed the costs and there may come a point when we can no longer absorb them.

“We won’t be the only brewer who would say that. It’s enormously challenging. After surviving Covid and rebuilding, it’s a big issue to face on top of energy costs.”

Rowan Crozier, CEO of the Birmingham manufacturer Brandauer
Rowan Crozier, CEO of Birmingham-based manufacturer Brandauer, says the falling pound is an “uptrend for us”. Photo: Fabio De Paola/The Guardian

Things are different for companies whose exports are more valuable than their imports. The Brandauer metal stamping plant, which turned 160 in March, ships products such as razor blades and components for electrical appliances such as kettles all over the world.

“At the moment things are looking up for us,” said Brandauer Managing Director Rowan Crozier. “It’s a pretty good opportunity for us at the moment.”

While a weaker pound means Brandauer has to contend with rising import costs from China (paid mainly in US dollars) and Europe (paid in euros), the bottom line is that Crozier’s business benefits.

“Dollar pound where it is makes us look cheaper,” he said. The sterling costs, such as paying the 69 employees and running the factory, make up a larger part of the cost of Brandauer’s products than imported goods.

Crozier is also aware of the negative impact of a weak pound. If the currency stays near historically low levels, it would likely contribute to increased inflation in the UK, which in turn would potentially force the Bank of England to raise interest rates faster than usual, making borrowing more expensive.

Exports are a fundamental part of Brandauer’s business – the company won the Queen’s Award for International Trade in 2019 – and as such constantly monitors exchange rates. She tries to protect herself from volatility by keeping segregated accounts in sterling, dollars and euros and spreading her currency risk whilst also using derivatives from her bank to hedge against foreign exchange movements.

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