Exchange rate impacts on UK exporters

I last wrote about exchange rates in June, when Macron’s snap election had caused the Euro to slide in value. Since then, much has happened.

The Euro dropped further, bottoming out at 1.1907 against sterling on 24^th July and remained around that level until 31^st July. In that week, the lamb market also showed stability, as the GB deadweight new season lamb price pulled out of its seasonal fall to average 647p/kg. This would have made UK lamb €7.70 per kilo.

In the week that followed, the Euro strengthened, closing at 1.1607 on 6^th August. That week, GB deadweight new season lamb prices were 655.3p/kg. This would have made UK lamb €7.60 per kilo.

So, despite domestic prices rising slightly, the price in Euros fell, making UK exports more competitive. This emphasises the importance of exchange rate movements in UK export markets. If sterling is relatively weak, it will help UK exporters and vice versa.

The key factors driving the comparative strength of the Euro were first, the reduction in interest rates here in the UK, the first reduction since March 2020, announced on 1^st August. Lowering interest rates makes sterling less attractive to investors and demand drops, reducing its value compared to other currencies. In addition, in the same week Germany released better than anticipated industrial output figures, strengthening the Euro.

The medium-term outlook appears to show the effect of the interest rate reduction reducing. Further currency movements will be influenced by a range of factors including the state of the EU economy, political stability both in the EU and the UK and the timing of future interest rate cuts here in the UK. AHDB will be closely monitoring these influences and assessing the impact on UK exporters.