Swift Electrical’s commercial director, Malcolm Scott, looks at currency-related price increases and asks who wins and who loses
As we face the next batch of quarterly price increases, with kitchen-sector leaders like Neff, Bosch and Smeg all edging up their prices, I find myself asking exactly how currency-driven price increases are impacting specific organisations and groups. For every loser, there is usually a winner – so is anyone winning?
Since 80% of all income generated in the UK comes from providing services rather than physical goods, most of our kitchen customers only encounter foreign-currency issues when they book an overseas holiday.
Whereas one pound bought you $1.56 or €1.38 in June 2016, it now buys you only $1.30 or €1.09. So consumers can see there has been a huge realignment.
Indirectly, most consumers will already have seen price rises on various items in their weekly shop, but these price rises have been introduced gradually and so have not been easy to detect.
‘Big-ticket’ purchases like TVs, kitchen appliances and household furniture are quite infrequent, so most consumers have no reference point to compare prices, and so will not be aware of increases. The main threat to current consumer spending levels is a gradual reduction as inflationary price increases squeeze domestic budgets.
The biggest group of UK consumers who will quickly feel the pinch are the three million eastern European workers currently resident in the UK, many of whom remit money home each month or travel home frequently to see their families. Conversely, the more than one million British expats working in Europe will feel much better off when they return home for a visit.
Anyone working in the incoming tourist sector in the UK should see a significant increase in overseas visitors arriving with more money to spend. Even more London properties are likely to be bought by overseas investors. On the other hand, we are likely to see some of the Brits who settled in Spain with British pensions feeling so much worse off that they simply pack up and come home.
British companies with overseas divisions that send back profit in euros or dollars, like Wolseley (Plumb Center), will see substantial gains, and domestic manufacturers like Symphony, Glen Dimplex Group and White Knight, who have significant export sales, will also benefit. Companies manufacturing in the UK may need to pay more for raw materials bought in euros or dollars, however the real value is in finished products and they will certainly have a comparative advantage over importers in the UK.
We should remember that our economy is the world’s fifth-largest measured by GDP. The UK is the world’s 10th-largest exporter, and fifth-largest importer of goods and services. In addition, the UK is the world’s second-largest destination for inward investment and the world’s third-largest outward-investing nation.
Even with the service sector accounting for a whopping 80% of all UK domestic GDP, we remain the world’s ninth-largest producer of manufactured goods. A drop in exchange rates might just boost our already healthy manufacturing sector, which remains very important for us. For example, 50 million jars of Marmite are made in Burton-on-Trent and Camberwell each year and Crumlin in south Wales sees an annual production of 175 million Pot Noodles. I could also mention world-leading UK brands such as Johnnie Walker whisky, Colman’s Mustard, and Lea & Perrins Worcestershire sauce.
UK food and drink manufacturing generates more than £20 billion in sales every year and employs half-a-million people. In key sectors like car manufacturing, oil-refining and pharmaceuticals, we export almost as much as we import.
A devaluation, like the one we have just had, must surely boost our exports and reduce our reliance on imports. The Brexit settlement may be better than we currently fear, and the kitchen industry might just find that, with more better-paid jobs created in domestic manufacturing, we may see more consumer spending on kitchens.