What does the falling pound mean for business?
6th October 2022
Who remembers BLACK Wednesday? That was 16th September 1992. I remember it well.
As the global technical sales manager for Yorkshire Chemicals, that was one of the best days of my business life!
On that day, when the Great British Pound collapsed and Britain had to withdraw from the European exchange rate mechanism, I could literally sit back in my comfortable office chair, as could all my team of international business travellers, YCL global subsidiary managers and agents as we watched the orders rolling in. I think it turned out to be the best year in over 40 years of chasing sales figures and budgets.
Of course, the contra was the effect on imports for consumer goods and raw materials, but I was not worried about that, I spent my time in the office gleefully checking sales figures against budget almost every hour!
Following the Chancellor of the Exchequer’s ‘mini’ budget on Friday 23rd September the GBP went into free fall. I recalled that day in 1992 and thought of all the international sales manager of today.
But the reality of a slump in our monetary value is not all champagne and chocolates. For a start, it completely throws the plans of UK businesses working in the international theatre into chaos. In 2022, there is so much more reliance on imports of products, such as raw materials, than 30 years ago, as a result of globalisation.
Many companies rely on their ability to source reliable raw materials at the right price to manufacture their specialised products for re-export. This is even more significant today, sourcing advanced manufactured composite materials, many of which may not be available with local manufacture.
The significant overnight increase in those raw materials throw even the best laid business plans into disarray, increasing the costs of the finished product way more than your customers could reasonably expect. Oh, and by the way, what your overseas customer must pay for your goods has also decreased, surely you can make up the difference there. These days it is not so easy, your customers are savvy, they are looking for massive savings on the exchange rates. If you increase the price of your product to offset the increased production costs overnight, you can be sure questions will be asked and relationships strained, many contracts of sale are secured over the term of the contract. But it is not just the raw materials that inflate, it is everything, because we live, work, and breathe in a global economy. Most deep-sea shipping costs are quoted in USD for example, all our energy is paid for in USD, so you cannot relate the increase in cost just to the import price of your raw material. The costs associated with simply running the business have also dramatically increased overnight.
Away from business for a moment. The UK imports more than 50% of its food. Electrical goods are in the main imported and many other products and services, the cost of filling up the car rockets, creating a massive hike in the cost-of-living which in turn, fuels inflation.
Oh, happy days. I think I’m going back to 16th September 1992. Where can I buy a ‘made in the UK’ time machine?
Nick Patrick
Head of the Sheffield International Trade Centre
For more information and any kind of international trade help and assistance please contact the Sheffield International Trade Centre: International@scci.org.uk or call 0114 308 1740
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