How the cost-of-living crisis is affecting the Pound

The cost-of-living crisis is hitting UK businesses, families, and individuals deeply, with the effects only set to worsen as we move into the winter months. The crisis is being caused by a combination of factors, with inflation increasing the price of goods throughout supply chains and on shop shelves around the country, hitting 10% in July. The crisis has been exacerbated by an increase in the price of energy, caused by rising wholesale natural gas prices in turn caused by the war in Ukraine and the resulting geopolitical tensions with Russia. This will affect businesses, households and supply chains due to increases in fuel as well as household energy. The energy regulator Ofgem, raised the energy price cap by 54% In April 2022, and is set to raise it again in October by another 80%, and raise it once more in January. 

The power vacuum left by Boris Johnson after he resigned as Conservative Party leader earlier this summer, has exacerbated the crisis, with no clear plan emerging from the Government to combat the crisis.  His replacement, Liz Truss, is now in post, and has been under immense pressure to set out a plan to deal with both the causes and effects of the crisis. 

The outlook for the UK economy remains challenging given ongoing inflation levels, however, the introduction last week of the energy bill price cap by new Prime Minister Liz Truss is expected to radically cut the expected peak in inflation and thereby, improve the outlook. There are even some suggestions from a number of economists that the move could lead to the economy not falling into a recession providing a much needed positive end to the year. 

The UK has been uniquely affected by the crisis. Inflation and high energy prices are problems globally, but the UK is being particularly harshly affected due to long term low wage growth, meaning households are even more impacted by the increased prices. This has affected investor confidence in the UK, and the Pound is suffering as a result, hovering close to its weakest levels since 1985 and lower than both the immediate aftermath of Brexit and the start of the COVID-19 pandemic. 

Currency UK is staying abreast of developments as they happen and supporting our partners and their clients with risk management through this testing period. While costs are broadly increasing, business continues to be done. As a result, it’s important to make savings wherever possible. Currency UK can help businesses make these savings by reducing costs on currency transfers and protecting profit margins, both crucial in this volatile market.

Reach out to us today to secure a no-obligation assessment or your FX risk exposure, or find out more about saving money on international payments. Whatever your currency needs, we can help.