‘Big impact’: UK economic chaos, pound plunge hit businesses
Sep 29, 2022, 11:32 AM | Updated: 11:37 pm
(AP Photo/Frank Augstein)
LONDON (AP) — Like many small business owners in Britain, Harry Niazi hoped for government help to keep his south London fish and chip shop going in the face of rocketing energy bills and soaring inflation.
But an economic stimulus plan announced last week by Prime Minister Liz Truss’ new government brought no relief — far from it.
For Niazi and millions across the United Kingdom, things went from bad to worse after the promise of huge unfunded tax cuts sparked turmoil in financial markets and sent the British pound tumbling to a record low against the U.S. dollar this week.
“Everything’s based on the dollar — diesel for the vessels to catch the fish, trucks to deliver our products. It has a big impact,” Niazi said from his takeout shop, Olley’s Fish Experience.
The pound’s slide is hitting many businesses hard because imported materials and commodities like natural gas that are priced in dollars will be more expensive. Businesses will likely be forced to pass the costs on to consumers, which would further push up inflation — already close to a 40-year high at 9.9%.
That would worsen the squeeze on people facing yet another hike in their household energy bills Saturday, even though Truss’ plan capped a more devastating 80% rise as natural gas prices soar.
“I’m terrified of putting my prices up. We have a good volume of customers coming in, we don’t want to lose them, but every day something goes up in price. I don’t know how we’re going to cope,” Niazi said.
The haddock, cod and other white fish he imports are priced in dollars, and that cost had already surged since July, when Britain’s government imposed a 35% tariff on Russian seafood imports as part of sanctions over the war in Ukraine.
Niazi’s concerns about the sliding pound are echoed by other businesspeople like Sanjay Aggarwal, co-founder of Spice Kitchen. The Liverpool-based company sells Indian spice mix gift sets packaged in steel tins from Indian manufacturers.
Tins and shipping — his business’s two biggest costs — are both priced in dollars.
Aggarwal said he’s already been forced to hike his prices this year because of rising steel prices. Shipping costs, too, have spiraled since bottoming out amid the depths of the coronavirus pandemic. The cost to ship a container from India to Britain has quadrupled since 2020 to about $8,000 to $9,000, he said.
His latest shipment is already en route in time for Christmas, but he’s bracing for a price shock when he has to place his next order.
“We are affected because we’re playing on a global scale,” said Aggarwal. “So any future orders we now place, it’s going to cost us 20% more.”
Beyond Britain, the dollar has hammered many other world currencies, fueled by the U.S. economy performing better than others and aggressive Federal Reserve interest rate hikes drawing investors. The dollar’s strength also has pushed the euro below parity and sent China’s yuan to a 14-year low. The U.S. Dollar Index, which measures the greenback against six other major currencies, has surged 18% this year.
Britain’s Wine and Spirit Trade Association warned that the falling pound is “set to raise prices for consumers and threaten hundreds of British jobs in bottling plants across the U.K.”
The trade group said a fifth of all bulk wine imported to the U.K. for bottling comes from the United States.
Miles Beale, the group’s chief executive, said that although the government’s measures included “laudable” plans to freeze alcohol duties, “the pound tanking against the dollar has both usurped them and delivered a significant blow for U.K. wine businesses and consumers.”
The mood of uncertainty has heightened since the government unveiled a plan to cut 45 billion pounds ($48 billion) in taxes but no details on spending reductions, meaning they will be funding by public borrowing. Officials also want to spend billions more to subsidize steeply climbing energy bills for people and businesses.
The plans were met with widespread concern from economists and investors about ballooning government debt, and the International Monetary Fund warned that the moves could worsen inflation and the cost-of-living crisis.
The Bank of England has so far refrained from an emergency interest rate hike to offset the inflationary impact of the slide in the pound, but many expect the central bank to sharply raise rates soon.
That has sparked panic among many homeowners used to interest rates that have stayed low, at around 2%, for years. A sudden sharp rise in borrowing costs will make mortgages unaffordable for many.
Dee Corsi, chief executive of the New West End Company, a group representing hundreds of shops, hotels and restaurants in London’s famous Oxford Street shopping district, said she is certain those worries will loom large for consumers.
“We may benefit in the short term with a boost of tourists, especially from the U.S.” because of the weaker pound, Corsi said.
“But in the long term, the lower pound will push up the cost of all imports for business,” she added. “And with the cost-of-living crisis — we can’t not talk about that — and with mortgages going up, I absolutely think people will be more cautious with their spending.”
For some business owners, the Conservative Party’s divisive economic plan might be alienating them in other ways, too.
Niazi, the fish and chip shop owner, is a Conservative Party voter but said he is disappointed in the government and “most probably” would not back the party in the next election.
“I don’t know anything about running the country, but I know what the government is doing is hurting everybody,” he said.
“It’s not working, something’s gone wrong,” he added. “They need to fix it.”
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