DGB Business: Sterling Rises Over 3 Cents In A Few Days

It’s not made the headlines in recent days, as Brexit, the Italian referendum and other news stories have taken precedence. But, Sterling has been on a bit of a steady rise since the flash crash of mid-October which saw the Pound nudge briefly below $1.20.

As of writing, the value of Sterling vs the Dollar is $1.2728, a rise of over 7 cents since mid-October. However last weeks was one of it’s best weeks in a while. Rising by over three cents just last week. In fact it was nearer four when you look at session lows versus finishing highs.

Against the Euro, the Pound is hovering at around the 1.20 mark, ten cents higher than it’s lows in mid-October. Whilst both currencies are still a way off from their pre-referendum highs, this mini-recovery is important.

UK glazing affected by both currencies

The UK glazing industry relies upon many materials bought and imported from around the world, bought in both Euros and Dollars. Perhaps an unfortunate situation, with much of the UK economy reliant on goods produced and bought abroad, leaving us little control over changes in economic circumstance.

So, when the value of the Pound falls against the Dollar and Euro, it costs companies who import more for their goods. Small increases and decreases are rarely felt at installer level in our industry. However, the steep drop after the EU Referendum saw the currency drop almost 20% against the Dollar. We were all bound to feel that one. And so we have, with some manufacturers immediately pouncing on the drop to raise their own prices, significantly in some cases. Others though did not, and only left it until absolutely necessary to lift price by a small amount.

Whilst we don’t like it, reality had to set in and prices had to rise in order to off-set some of the raw material price increase. A balance has to be sought though. Price increases of 15%+ to installers from manufacturers is very steep, too steep. If the whole industry was to pass that down to the home owner our industry would come grinding to a halt pretty much straight away. That is why some suppliers have chosen to hold off, and only increase by relatively small amounts when they had to. It gives the installers and then the home owner a chance to absorb, reflect and then move forward.

But I suspect, for the time being at least, the worst has now passed. And Sterling has been quietly gaining back some of the ground it has lost in recent months.

A steady, solid rise

Take a look at this chart from CNBC of £ v $ over the past 5 days:

Credit: CNBC

I took that screenshot on my phone on Friday. Since then, Sterling has had another solid today, inching further higher, regaining a little more lost ground.

For me, this is a sign that investors are probably now calming down, realising that there is still plenty of time left for the lay of the land to be known, and with the UK economy still looking pretty damn solid compared to many other G20 nations, it’s perhaps time to give Sterling a break.

But what does this mean for us? Well, for suppliers looking at their next purchasing cycle, prices won’t be as expensive as they once were. Does that mean they will reduce prices as a result? Probably not. We all know how stubborn most suppliers are when it comes to reducing prices. There is one exception to that rule however.

Brisant, in an effort to open up the pricing environment and shed some light and honesty upon the matter, announced just the other week that they have created an honest pricing mechanism, whereby they show everyone what the value of the currency is, and with each swing of five cents, their price will go up or down by 2.5%. Simple. Sterling recovers, price drops. Sterling drops in value, price goes back up. I think when it comes to pricing, that’s all anyone wants from their suppliers, honesty. So, just three more cents and by my calculations that’s another 2.5% drop!

That then leads to a difficult question for many others to answer. By announcing raised prices purely on the back of Sterling weakness, if and when it recovers, which it slowly looks like it is, will those same suppliers drop them back down again? We live in a world played out on social media. I suspect that if the Sterling recovery continues, questions are going to be asked by installers, in the public domain, why their prices are not falling.

But for now, lets hope that the Sterling recovery continues. With Europe looking edgy again and Trump to be inaugurated in January, the UK and the Pound doesn’t look all that risky for the moment.