This week saw British retail stalwart Laura Ashley post a fall in profits of 72% on last year, something the international homeware retailer – Head Quartered in the UK – has blamed squarely on the plummeting Pound. But while some are feeling the pinch, Sterling weakness offers advantages for many UK enterprises, says FXTM’s VP of Corporate Development and Market Research, Jameel Ahmad.
Sterling claimed the crown for poorest performing currency of 2016, with the Argentinean Peso coming in just a whisker behind it. This year we’re seeing a change in the race line up, with the Pound relegated to second place and the Turkish Lira on track to bag the title of Worst Performing 2017.
The unexpected Brexit vote was the primary instigator of the Pound’s fall from grace, and the depreciation has been felt keenly. Annual inflation has jumped 2.4%, wage growth has slowed and consumer spending has fallen, pushing the UK’s economic growth for 2017 Q1 below that of even Italy and France.
But there’s a flip side to weak currency. Exports become more competitive – providing industries are able to leverage the cheaper Pound. International conglomerates like Laura Ashley are suffering because of the effects of globalisation. The relationship between Sterling and exports is more complicated than it once was, and manufacturers typically import at least some components — the costs of which increase when domestic currency value declines — pushing up the price of manufacturing.
However, export industries, such as agriculture (and the wider British food and drink industry) are all well situated to capitalise on Sterling weakness. The depreciation of the Pound contributed to put the British Pork industry in the black for the first time in decades, as British produce finally became competitive on the international market and Chinese importers took full advantage. Scotch Whisky, one of the country’s biggest exports, is also experiencing a boom thanks to Sterling’s decline, with overseas sales increasing.
Tourism is another obvious beneficiary; a depreciating national currency reduces the cost of a visit for overseas citizens. The UK enjoyed a 7% increase in foreign visitors in June 2017, compared to the same month of the previous year. To date, these tourists have brought in nearly £11bn in 2017, £1bn more than 2016. The majority of tourists are from within the EU, but China and America are also well represented and (crucially) spend more during their visits.
The U.K will never again be a major manufacturing hub, and a depreciating pound means manufacturers like Laura Ashley–a quintessential British brand who relies on imported materials – are taking a hit. The secret to long-term success, is exporting domestic produce and services. With low overheads and no import fees, digital, service and consultancy-based businesses are arguably one of the best placed to capitalise on Sterling weakness.
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