Costs expected to rise after pound's record low

As the value of the pound plummets, businesses are anticipating that their costs will rise - exasperating what they are calling the 'cost of doing business crisis'.

On Monday (September 26) the pound slumped to a record low against the US dollar.

It also fell against other international currencies.

The drop was mainly due to fears that the government's mini-budget would see the country plunged into unsustainable debt to pay for its tax cuts pledge.

Although the pound has rallied slightly - with £1 worth $1.08 the time of writing - it still remains weak and unstable.

For businesses and consumers, the falling pound will make everyday costs more expensive.

Both gas and oil prices are based on the dollar, while many firms depend on imports and will likely see the cost of materials and supplies rise.

Mat Waters, partner at East Anglian accountants Lovewell Blake, said: “The two biggest consequences of the pound’s weakness against the dollar - and indeed, other global currencies - for businesses will be an immediate rise in the cost of imported raw materials, and the likelihood of considerable interest rate rises at a scale and in a timescale which few businesses will have predicted.

“Many UK manufacturing businesses rely on sourcing components abroad, and these will now be more expensive.

"It’s true that a weak pound makes exported goods more competitive in international markets, but if the input costs have also risen, much of that competitive advantage will be diminished."

Norfolk brewery, Duration Brewing, depends on imports from the US for some of its key core products.

"We only procure hops from the US, however, these are our most expensive ingredients and are concerned that the fall of the pound against the dollar will adversely impact the cost of goods making it prohibitively expensive," said Miranda Hudson, co-founder of Duration Brewing.

Miranda Hudson and Derek Bates, co-owners of Duration Brewing (Image: Duration Brewing)

"Three of our seven key core brands Turtles, Dripping Pitch and Sweeping Coast are American styles with US hops in their profile and together these account for a high percentage of our brewery sales.

"It would be very hard to change our entire offer should we no longer be able to afford to procure US hops.

"This is an added blow after seeing ongoing price hikes on cardboard, aluminium and utilities - all costs that affect our bottom line in a time when our customers can't afford the cost increase on our products."

Jenny Hanlon, from Suffolk brewery Adnams, said that although the company will benefit from a cheaper export market its import costs are also rising.

She said that although the company sources as much as possible locally "there is still a need for our business to buy from overseas".

Ms Hanlon continued: "From a customer perspective we count over 30 countries in our export market.

"Therefore we experience currency risk from both our supply side and our customers.

"We work hard to reduce our exposure to any volatilities in the market place, and currency is no exception.

"The recent lack of stability in the currency market has placed more emphasis on this area.

"With our close and long standing supplier and customer relationships, we are working hard to minimise any impact these currency swings could have on the business."

Since the value of the pound plummeted there has been speculation that the Bank of England will swiftly hike interest rates, which will affect both businesses and consumers.

Official Bank Rate (Image: Bank of England)

"It is clear that UK interest rates are going to rise further and faster than anyone predicted – with commentators now predicting a peak of 6pc or more," said Mr Waters.

"That means borrowing will become more expensive, and hence investment more difficult – not to mention the effect on consumer behaviour.

“In the light of this maelstrom, there are limited actions that businesses can take to deal with the currency crisis – to an extent we are all passengers being carried along by the markets.

"What will be vital is to update cashflow forecasts regularly, and in doing so, to revise some of the assumptions - such as modest inflation, moderate interest rate rises and a stronger pound - which may have been used in forecasts up until now.

"Businesses also need to review the reserves they hold, especially those which trade internationally, to attempt to build in at least some buffers against the turbulent times ahead.”