Last week, the pound hit a new low against the dollar after new Chancellor Kwasi Kwarteng pledged to cut taxes. Worries about higher interest rates then knocked investors' confidence quite dramatically ...
One of the reasons we have higher prices is because the cost of imported goods and services increases. When a UK company brings in food, raw materials or parts from abroad, they need to pay more for it because the pound is weaker against the dollar (and the euro), and therefore they charge more to us.
At a time when the cost of living is already soaring, this isn't a good thing as it boosts inflation. It also means the Bank of England is likely to increase interest rates further, hoping to cool off inflation as people switch to saving rather than spending.
And, of course, energy costs have soared thanks to the conflict in Ukraine. Russia has been cutting off countries for various reasons, but mostly because they're refusing to pay in Rubles which means there's less gas to go around, so the prices go up dramatically.
In addition, the gas that the UK uses is paid for in dollars, even if we produce it in our own country, so a weaker pound pushes up the domestic price. This is why the new Prime Minister, Liz Truss, has needed to put an energy cap in place this winter or the bills faced by households and businesses would have been ridiculous.
It is heartening to note that wholesale gas prices have come down recently as suppliers switch to alternative and more reliable sources, so the cap will cost the country less overall, which is a good thing for our national debt levels.
And oil is bought and sold in dollars too. Again, the wholesale price has been coming down in recent weeks, but drivers are not going to see any benefits at the pump because of the slide in the value of the pound.
By contrast, some businesses in the UK are getting a boost from the fall in the value of the pound against the dollar and euro. A cheaper pound means it is less expensive for people outside the UK to buy products and services from British firms.
This could provide some benefits for those firms struggling with extra red tape and customs checks introduced after we left the European Union. It has been revealed that exports from the UK to the EU declined by 21% in 2021, so maybe a weaker pound will boost those exports dramatically.
The economy is going to be a bit bumpy for the foreseeable future, so do remember The Business Godparent is always here to help.
If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.