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What does the strength of the pound mean for UK Manufacturing and Holiday Makers?

What does the strength of the pound mean for Manufacturing and Holiday Makers?

 

Sterling is now riding high and the exchange rates with the euro, US dollar and Chinese yuan are currently firmly in the UK’s favour. What does this actually mean for us, though?

 

Well its bad news for businesses that export, with a monthly report from the Chartered Institute of Procurement and Supply/Markit claiming that exports are down for the fourth month in succession and that factory output is barely above recession levels, despite a general upturn in each Eurozone nation.

 

The UK Purchasing Managers’ Index dropped to 57.4 in July from 58.5 in June; any reading above 50 shows that the sector is improving. This rate of growth, though, is the lowest in 10 months and analysts believe that rising demand within the UK has been tempered by a decline in exports thanks to the strong pound that makes UK goods more expensive for our European neighbours. European Union members account for almost half the exports of British manufacturing, so a weak euro inevitably has a powerful effect on the UK economy.
Signs of recovery

 

 

There are signs of a recovery from the euro, after Germany signed off a potential deal with the Greeks, but there have been false dawns in the past and it will only take one more Eurozone crisis for the whole system to be plunged into chaos once again. Greece may have made all the headlines, but Portugal and Italy are still struggling and the financial world has been quick to hit the panic button of late.

 

 

While the strong pound helped British manufacturers claw back some of the lost profits with lower costs for materials and fuel, which was already on a downturn, it’s not enough to offset the losses inflicted by a currency that is currently stronger than the euro.
Lee Hopley, chief economist at EEF, the manufacturers’ organisation, welcomed the PMI survey and suggested that manufacturing output was, on the whole, picking up. However, even she admitted that poor exports were still holding the sector and indeed the country back.

 

 

Hopley said: “While the headline movement was positive, the story behind the index is a familiar one – decent domestic demand driven by consumers with strengthening purchasing power, contrasting with persistent challenges in getting exports moving and weak demand for investment goods in the oil and gas sector.
“This is good enough to keep employment prospects growing across manufacturing, but until something gives in export markets or oil and gas investments, the outlook for growth will remain modest.”

 

A strong pound is causing UK businesses problems selling to America, too. Even the prediction of interest rate rises was enough to cause analysts to predict that the pound would continue its relative dominance over the US dollar. After hitting a seven week high at $1.57 to the pound recently, analysts predicted that the imbalance could keep on growing and we could soon see $1.60 to the pound. That is simply bad for business when it comes to exporting goods.
China, which is a key export market due to its sheer size and voracious appetite for steel and other raw materials, is actively devaluing its currency to prevent runaway inflation. That’s more bad news for the export market.
Job losses on the horizon?
With the manufacturing industry still reeling from the recession, there are inevitable concerns. Output is low, jobs are inevitably under threat and although the unemployment figures recently fell to 5.4%, a large part of the working population now faces zero hours contracts and a serious lack of job security. Even those that have a job could, theoretically, be reduced to near unemployment at a moment’s notice.
If the pound remains strong then there will be inevitable job losses, which will leave many workers high and dry. This will lead to many turning to short-term loans to pay the essential bills while they search for new jobs. Pay-Day Loans  can be a perfectly practical way to cover a short-term issue with the finance, but they’re an emergency measure when used like this.
Importing is cheap
It’s not all bad news for British business, though, as companies that can afford to stockpile goods, raw materials or even foreign currency can invest now to boost profits down the road. The flip side of the painful export coin is cheap imports, so those with the cash reserves to plan ahead can use this dip to boost profits in the future. Other firms that sell imported goods can also boost their margins, so it could even be time for traditional businesses that are suffering with a strong pound to diversify and find a way to take a lemon and make lemonade.

 

 

Holiday Makers
As for holidaymakers, it’s all good news. Package deals are at their lowest price for years thanks to the perfect storm of low fuel costs for the airlines, intense competition for the post-recession traveler and the exchange rate effectively lowering the price of accommodation on foreign soil. The Telegraph recently claimed that a family of four could save up to £100 a day on their family holiday. These are halcyon days for the British holidaymakers then.

 

You’ll get more for your money when you arrive, of course, with more euros, dollars or whatever currency you’re going to spend in the local restaurants and shops. You can maximise that advantage by buying currency early and shopping around on sites, which compare currency prices and shows you the commissions charged by a variety of companies.

 

Changing money in the resort, or relying on cashpoints and being a hostage to sometimes very unfavourable exchange rates, is not the best way to do things. Organise your money well in advance, get the best rate and make sure you have a safe in your hotel room, or you’ll end up carrying all your money with you and that is asking for trouble.

 

 

The exchange rates, then, are a double-edged sword. They’re undoubtedly making things tough for the export market, but they’re giving us the cheapest imports and holidays for many a year.


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