The recovery of the British economy has not been all good news as the pound’s surge is leading many companies to worry about the financial implications of this on exports.
Over the past year, sterling has gained about 13% against the dollar and about 10% against the euro. Against emerging market currencies, the rise has been even more dramatic, with the pound surging 24% against the Turkish lira.
Concern about the strength of the pound, particularly against the dollar, is growing because it will mean US firms’ products are cheaper.
The British division of Indian-owned SPP Pumps, which manufactures pumping systems for a wide range of industries, exports between 70% and 75% of its products, is experiencing this problem.
Ken Winn, operations manager for the UK, says he has already seen a drop in its order intake linked to the rise in the pound against the dollar. “When the pound was at the 1.60 level against the dollar we were managing okay. Now it is above $1.70 we are seeing real issues and we are beginning to lose out to competitors.”
The pounds performance has also fuelled investors’ conviction that interest rates will rise before the end of this year.