Inflation, interest rate hikes, 40-year lows, How protected is the Retail Industry?
This has been the month for central banks to stamp their marks on their economies in a bid to control the soaring global inflation crisis. Last week alone has seen one of the most turbulent currency markets we have seen since the Pandemic with numerous central bank decisions driving the markets. We saw a Bullish FED, Swiss national bank and Riksbank in the last 48 hours push interest rates by 0.75% while the conservative Bank of England went for a more dovish 0.5%. This caused a prompt sell-off in the pound dropping the greenback below 1.13 for the first time in 40 years. Even the over-cautious ECB pushed interest rates up by 0.75% earlier in the month. The question is how does this affect the retail industry? The answer is sizeable, with both huge negatives given the weakness in the pound but also some minor positives. One such positive is given the increase in the interest rate disparity between the UK and US with the FED’s aggressive rate hike policy hiking rates by 0.75% compared to the conservative BoE’s 0.5% meaning forward points on longer-term contracts can achieve more favourable exchange rates. However with the pound at 40-year lows, the slight increase on longer-term contracts comes with little consolation. Equally with the majority of retail imports coming from China to the UK retailers will feel the pinch of the poor-performing pound more than most. With alternatives limited we have looked at solutions with our partners. Aside from looking deeper into how to protect business profit margins and costings levels, we have used our relationships with our partners in Hong Kong to assist clients to negotiate a move from USD into CNY and then go one step further in using the in-country partners to help negotiate on our client's behalf a more favourable cost of goods. Depending on the subsector of the retail industry, many will be looking toward spring stock. While trying to navigate the economic climate on whether the UK will or won't be in a recession in addition to calculating prices, budget rates and in simple terms how much stock to order. Retail is always one of the last industries to be hit by a recession and then one of the last to recover.
With retail sales already on the decline with a large proportion attributed to the fuel price increase, looking more closely at how you can protect your business and plan for the next 3-6 months is crucial. As an independent advisory, Jackson Swiss Partners uses not only our combined 30 plus years in the FX industry along with our vast network of clients and partners to assist you in this planning.