Manufacturers hope for boost from falling pound after bringing suppliers onshore
Manufacturers are less at risk from the collapse in the pound than in past currency crises after a scramble to sever ties with foreign suppliers in the wake of Brexit and the pandemic.
Three-quarters of companies have increased the number of their British suppliers they use in the past two years, according to a survey by Make UK published in May.
More than 10pc of members told the trade body that they planned to reduce reliance on Asian suppliers, reacting to supply chain problems caused by the pandemic and the UK’s withdrawal from the EU.
The increase in domestic supply chains means British factories are less exposed to the historic collapse in the pound, which dropped to its lowest level ever on Monday against the dollar. Businesses that sell their products in dollars but have costs in sterling will in fact see a rise in profits.
Gary Seale, director of iDry, which makes full body hot air dryers which are fitted to showers for those with mobility problems, said: “For us, we're about 6pc better off to our net profit. It’s a big number, I’m over the moon. I hope it lasts as long as possible.”
When the pandemic began to interfere with imports and lead times from China, Mr Seale found alternative suppliers in Britain, meaning most of his costs are in pounds.
He makes about 15pc of sales in dollars, largely to the US and Canada, half in the UK and the rest mainly in Europe. His markets include Norway, Denmark and Ireland.
He says he learned about the pitfalls of trusting low cost suppliers abroad when the pound suffered against the euro during the financial crisis and the automotive company he was working for faced a loss on a big contract.
A weak pound makes British goods cheaper to sell overseas but is a problem for businesses that import raw materials priced in dollars.
Nimisha Raja, owner of Nim's Fruit Crisps, said she is waiting for an email as soon as today telling her that prices for fruit such as pineapples, priced in dollars, will rise again. Increases in energy and transport costs have already pushed the cost of pineapples up from 69 pence to 79 pence per kilo in the last year.
Her company makes healthy snacks as an alternative to crisps made of potatoes and she imports about 400 tonnes of fruit a year. Less than a fifth of her sales come from exports.
Ms Raja said she was concerned about higher borrowing costs, amid fears that a crashing pound will prompt the Bank of England to raise interest rates to calm the markets.
“It's just making it so much harder for us to think about the long term, and where to take the business and invest in the business and grow,” she said.
Many companies will have hedged their exposure to the value of the pound, effectively buying or selling ahead in negotiations with their banks, customers and suppliers.
Stephen Phipson, chief executive of Make UK, said the collapse in the currency could deter investment.
“The far bigger issue is that a weak currency has always suggested a weak economy and, given how far the UK is now dependent on ‘the kindness of strangers’ to fund borrowing, some foreign investors may begin to look the other way,” he said.
