Currency Wars

The price of the £ has fallen by about 20 cents to $1.22 and 15 cents to Euro 1.12. How will this affect you?

If you are going to buy something that is imported, then do so quickly before the price increases. My wife and I have just bought a shiny new bright red Ford Focus, we were very keen to complete the deal, because prices will suddenly go up.

The people you see with a spring in their step are those that sell their goods or services aboard. Their profit margins just got 20% bigger. Hurray. It will help UK plc sell things aboard.

Prices will increase, the cost of fuel is already higher. All prices are reliant to some extent on imports. If you are thinking of buying a Mini, its price will go up both because of the increased price of foreign sourced components and because of the pull of overseas demand.

Eight years or so ago there was a similar drop in the exchange rate. At that time prices rose but wages stayed the same so people felt poorer. In my judgement it will be different this time. The labour market is really tight. I don’t think employers will get away with holding their wage rates. Wages will need to rise or your staff will leave. I believe that there will be more inflation.

As an employer it’s not all bad, if you have some staff who are over paid, or you rather worked somewhere else, a below inflation pay rise might do the trick. This is hard to do when inflation is Zero.

Watch your prices. If your wage costs are increasing and the cost of what you buy in is increasing you need to make sure your prices increase or your margins will be destroyed.

Overall a bit of inflation will be a bit of a challenge, one we can all cope with, and for most of us one we have dealt with before.