LBC Views: From travel to food and mortgages to energy bills, what the plunging pound means for you
26 September 2022, 16:27 | Updated: 27 September 2022, 08:12
The British pound has plunged to a record low against the US dollar and it is going to hit the pockets of millions of consumers. Here’s what every UK consumer needs to know:
Why has the pound plummeted?
The plunge was caused by the mini budget announced by chancellor Kwasi Kwarteng last Friday, due to doubts over the government’s spending plans, concerns about the amount the government is planning to borrow and planned tax cuts. All of this causes uncertainty and uncertainty in the UK will always have a detrimental impact on the value of the pound.
How will UK consumers be affected?
The Bank of England estimates that a 5% reduction in the value of the pound increases consumer prices by about 0.9% in the long term. As a consequence of the value of the pound plummeting, UK consumers will suffer with:
Increased energy bills This is because the price of the gas the UK uses is based on the dollar, meaning the weaker the pound is against the dollar the greater the wholesale price is and of course this end up hitting the pocket of consumers. Increased mortgage costs One likely side-effect of the fall in the value of pound is a further increase or increases in interest rates. If this occurs as many predict, mortgage rates will almost certainly follow suit. We could also see lenders being forced to withdraw their cheapest products and re-price their mortgage deals at higher rates.
Increased food prices This is because when the pound is worth less, the cost of imported goods from overseas goes up which is significant when you consider that roughly 30% of all food consumed in the UK is imported.
Increased petrol prices This is because oil prices are based on the dollar meaning petrol could be more expensive for UK drivers as it costs more to be imported by fuel companies.
Increased holiday costs The min impact here is to overseas holidays where you need change up currency as the pound will now buy you less currency. The worst affected will be those traveling to the US.
Increased prices on consumer goods Any goods that are imported into the UK are likely to go up in price, due to the exchange rate and cost of fuel driving prices up.
Urgent action needed Government needs to recognise that its mini budget and huge tax cuts has potentially caused significant rises in costs for consumers, leaving a situation where consumers are given savings in one hand only to give the savings back away in the other due to increased outgoings. The mini budget makes sense in many respects but it failed to help those on lower incomes enough and this needs to be address
