Weak pound could force retailers to increase prices

Jun 26 2009 by Graeme Brown, Birmingham Post

Experts are warning retailers could be forced into huge price rises because of the weak pound.

Retail sector commentators say firms in the non-food sector could be exposed to more than £20 billion of extra costs because the exchange rate of the sterling has fallen sharply.

The pound was worth $2 in May 2008 and fell to $1.50 in a year and West Midlands retailers are feeling the impact of additional costs from their imports, according to research from PricewaterhouseCoopers LLP.

Andy Lyon, retail expert at PricewaterhouseCoopers (PwC) in the Midlands, said despite the recent easing to $1.64 an extra £20 billion will have to be absorbed somewhere in the chain, by suppliers or retailers, or passed onto consumers in the form of higher prices, for example on clothing and footwear.

He said: “At a time when consumers are watching their spending closely and consumer confidence appears to be improving, the last thing shoppers need is price rises.

“But since retailers margins are so tight, these extra costs will potentially spill over into the prices consumers are asked to pay.

“Hopefully the recent strengthening in sterling will relieve some of this pressure.”

Mr Lyon said retailers and suppliers have been working and negotiating hard to offset the impact of the exchange rate fall.

He said reduced commodity and transport costs, as well as lower factory utilisation have enabled approximately 50 per cent of the impact to be mitigated by the retailers. However that still leaves an estimated £10 billion, or five of the total non-food UK retail market value, to be passed on.

The weak pound has of course brought some benefits to UK retailers, with foreign tourists spending more than ever on our high streets.

And with some UK consumers avoiding holidaying abroad due to higher exchange rates, UK stores may do well from increased domestic demand, according to PwC.