Falling the Pound leads to higher prices for UK consumers.

The Dollar/Pound exchange rate fell to an all-time low of $1.0327.

Most of the clothing and home goods that are sold in UK stores are imported from Asia using dollars.

It’s possible that many merchants will have contract provisions allowing them to hedge their currency.

POUND PLUNGE

Pound

British customers would probably experience considerable price rises for clothing and household products as a result of the pound’s slide against the dollar, according to specialists McKinsey.

Most of the clothing and household products that are bought by UK retailers in dollars are imported from Asia.

The price of imports has significantly increased since the pound hit an all-time low of $1.0327 on Monday.

When asked about the impact on consumer prices, Anita Balchandani, leader of McKinsey’s consumer industries and apparel, fashion, and luxury work in EMEA, said, “With the cost of goods being such a high proportion of the cost base of a company, the extent to which if you have that denominated in the dollar then it’s a pretty material effect.”

She contends that how companies have managed their currency exposure will ultimately determine the impact on customers.

Many retailers won’t be buying dollars at spot prices, according to Tera Allas, a McKinsey economist.

According to her, “They will have certain contract clauses that allow them to balance out those costs and possibly have hedged their currencies.”

Hedging is a strategy used by UK retailers The John Lewis Partnership and Marks & Spencer (M& M’s) to protect against currency swings.

The sudden decline in the value of the pound is alarming, but we have a robust hedging mechanism in place to manage such foreign exchange risks, and this has lessened any immediate impact on the partnership, according to a John Lewis representative.

Around 75% of M& M’s clothing, the retailer claims, is purchased with dollars.

It usually hedges for around 15 months, which means that it is protected for its fiscal years 2022–2023 and a significant chunk of 2023–2024.

Primark’s parent business warned earlier this month that the appreciation of the euro may reduce its financial year 2022–2023 profitability.

It has, however, pledged to limit potential price increases in 2019.

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