How the falling pound affects you – and who the winners and losers are

Published

2 years ago

September 27, 2022

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Friday’s mini-budget that promised billions in tax cuts and a multi-billion pound energy price cap has seen the value of the pound plummet against foreign currencies.

The new prime minister and her chancellor’s decision to cut various taxes by a combined £45bn, alongside a cap on energy prices that will cost taxpayers £60bn has resulted in a loss of market confidence.

Lenders withdraw mortgage profits; live pound updates

That loss of confidence in the government’s ability to pay back the billions they are spending means the Bank of England is likely to raise interest rates – in a desperate bid to bring down inflation.

This all has an effect on Britain’s day-to-day spending. Here, Sky News looks at who will suffer and who will benefit from the pound’s slump.

Petrol

Fuel is traded in dollars.

This means that a low pound will buy less fuel, forcing prices at UK forecourts to rise.

Drivers will have noticed a recent dip in prices at the pumps – compared with this summer when they approached £2 a litre for diesel.

But the slump in value of the pound will likely wipe out that fall, which was a welcome relief for many.

According to the AA, a pound that equals $1.08 will mean an extra 13.5p per litre of petrol.

That would add around £7.50 to the cost of filling up an average 55-litre car, when factoring in VAT.

An AA spokesman added that had it not been for former Chancellor Rishi Sunak’s decision to cut fuel duty by 5p in March, motorists would have likely seen an even bigger increase in the price per litre – of around 18.5p.

Energy

Gas is also traded in dollars and therefore also suffers from a poor exchange rate.

As with oil, wholesale prices have dropped internationally since the start of the war in Ukraine, but with a weak pound, similarly the UK won’t experience the benefits.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, tells Sky News: “At this stage, this won’t affect bill payers directly, because the energy price cap is set below international energy prices, so we’ll be paying less anyway.

“Instead it will have an impact on how much the guarantee will cost the government.”

The more the price cap costs the government, the less confidence the market will have in the government’s capacity to pay it back, causing the original problem to spiral further.

Food

Any goods imported to the UK from abroad will cost more when the pound is weaker.

According to the government’s most recent food security report, the UK imports around 45% of its food.

This has proven a major problem during the Ukraine war, with grain exports unable to leave the country for several months this year.

Along with the dollar, the pound is also faring badly against the Euro, which will mean European-grown fruit and veg prices will increase.

Produce grown further afield, such as bananas, will also go up.

Not all retailers will pass all of that cost onto their customers, however.

Supermarkets are often the last to increase their prices off the back of rising costs, as they try to remain affordable, and often buy stocks in advance to mitigate sudden market shocks.

But Ms Coles cautions: “Supermarkets have warned that although they are already absorbing a great deal of the increased costs of supply, they have to pass some of it on.”

Tech

Most of our tech gadgets, such as smartphones and tablets, are manufactured abroad.

Apple, for example, is based in California, but uses parts manufactured in China and Taiwan.

Again, a week pound will mean these foreign-made products cost more in the UK.

Apple has already increased the price of its latest iPhone range. The iPhone 13 started at £949 when it launched last year. The iPhone 14 range is retailing at £1,099 – a 16% increase.

Holidays abroad

The most obvious place consumers will experience the slump in the pound is at the bureau de change.

Holidaymakers bound for the US will get particularly less for their money than they used to – but with the pound also down against the Euro, holidays to Europe will also be more expensive.

With the cost of fuel also on the rise, airlines and package holiday providers may also increase their prices to mitigate costs.

Mortgages

A weak pound means inflation – which is already at 10% – getting even higher.

When inflation is high, the Bank of England tries to bring it down by increasing interest rates.

This higher price of borrowing is designed to encourage people to borrow less, spend less, and save more.

Currently forecasts predict interest rates hitting 6% by November, which will mean huge increases in people’s mortgage repayments.

Halifax, the country’s largest mortgage provider, is removing fee-paying mortgages from Wednesday. These allow people to pay a fee in exchange for a lower interest rates.

Virgin Money and Skipton Building Society have withdrawn all their mortgage products until they have more certainty.

The two million people in the UK already on tracker and variable mortgages will see far more of their monthly pay packet spent on repayments.

And those coming to the end of a fixed rate or hoping to buy for the first time will have fewer, more expensive deals to choose from.

“The issue is the fact that fixed rate mortgages don’t just depend on the rate today, they also depend on rate expectation,” Ms Coles explains.

“The dramatic overnight change in market expectations of future rates has ramped up the cost of doing business, and lenders are taking a break to reassess and reprice.”

Pensions

People approaching retirement could suffer from UK bonds – or gilts – being sold off in response to the pound’s fall.

Some investors automatically switch people’s pensions from stocks to government bonds as they get closer to retirement age, which will leave them with a smaller pot in the current climate.

Pensioners living abroad will also suffer notably – as their pensions are paid in pounds but their expenses are in stronger currencies.

UK exporters

British businesses that sell their products and services abroad will benefit from the pound’s slump as foreign buyers look to take advantage of cheaper prices.

This will see the FTSE 100 companies benefit, as much of their money is made overseas, Ms Coles says.

It could also provide much-needed help for smaller UK businesses struggling with the increased costs of Brexit.

Local tourism

More holidaymakers could be drawn to the UK from abroad by the promise of a cheaper holiday.

While Britons get less for their money at the bureau de change, inbound tourists will get more.

For example, a London hotel room that cost $200 (£186) at the start of 2022 now only costs $150.

Britons could also return to the ‘staycation’ trend seen during the COVID pandemic and also help boost the economy by supporting tourism and hospitality businesses at home.

Hedge funds

Hedge funds employ a strategy called ‘short selling’ or ‘shorting’ to take advantage of falling market prices.

It involves borrowing shares in a firm and selling them with a view to buying them back at a profit when prices fall.

Ms Coles says: “Plenty of hedge funds were shorting the pound before the fall – based on the belief that the markets had underestimated how long inflation would stick around for.

“So these paid off when the pound tumbled.”

UK

Bradford: One child dies and four other people taken to hospital after house fire

Published

10 hours ago

May 5, 2024

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Bradford: One child dies and four other people taken to hospital after house fire

A child has died in a house fire in Bradford.

A woman and three other children managed to escape the property and are being treated in hospital for non-life-threatening injuries.

In a statement, West Yorkshire Police said: “At 1.08 this morning (5 May) police were called by the fire service to reports of a serious house fire on Kingsdale Drive, Bradford.

“A woman and three children managed to escape the property and were taken to hospital for treatment. Their injuries are not life-threatening.

“A fourth child was found inside the address and was sadly pronounced deceased at the scene,” police added.

“A scene is currently in place at the address and police are working with the fire investigators to establish the exact cause of the fire.”

This breaking news story is being updated and more details will be published shortly.

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Rishi Sunak urges Tories to stick with his leadership after party suffers shock election losses

Published

16 hours ago

May 5, 2024

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Rishi Sunak urges Tories to stick with his leadership after party suffers shock election losses

Rishi Sunak has urged Tories to stick with his leadership despite the Conservatives’ shock defeat in the West Midlands mayoral election, which capped a dire few days of results for the party.

Sir Keir Starmer called it a “phenomenal result” which was “beyond our expectations” as Labour’s Richard Parker ousted Tory incumbent Andy Street, who had held the role for seven years.

The margin of victory was a cruelly tight 1,508 votes, and compounded Conservative disappointment as it followed another loss to Sadiq Khan in London, who secured a record-breaking third term as the capital’s mayor.

Local elections live
The mayoral election results

“People across the country have had enough of Conservative chaos and decline and voted for change with Labour. Our fantastic new mayor Richard Parker stands ready to deliver a fresh start for the West Midlands,” Sir Keir said.

However, in an effort to win back those who had deserted his party over Labour’s stance on Gaza, he added: “I say directly to those who may have voted Labour in the past but felt that on this occasion that they couldn’t that across the West Midlands we are a proud and diverse community.

“I have heard you. I have listened. And I am determined to meet your concerns and to gain your respect and trust again in the future.”

Labour suffered losses to independents and George Galloway’s Worker’s Party of Britain in areas with large Islamic populations as a result of the war between Israel and Hamas.

But the party virtually swept the mayoral elections board across England, winning in Liverpool, South Yorkshire, West Yorkshire, and in Greater Manchester, where Andy Burnham returned to power.

The Tees Valley was the only remaining splash of blue left on the mayoral election map, where Lord Ben Houchen managed to cling to power despite a huge 14.1-point swing to Labour.

Lord Houchen’s victory was also mired by allegations he had sought to distance himself from Rishi Sunak and the Conservative Party at large during his campaign.

Losing Mr Street, who is widely respected in the Tory Party and had an impressive track record of bringing investment into the West Midlands, is a body blow to the prime minister.

Despite the drubbing, Mr Sunak urged his party to stick with his leadership and his plan for government.

In a statement, he said: “It’s been disappointing of course to lose dedicated Conservative councillors and Andy Street in the West Midlands, with his track record of providing great public services and attracting significant investment to the area, but that has redoubled my resolve to continue to make progress on our plan.

“So we will continue working as hard as ever to take the fight to Labour and deliver a brighter future for our country.”

However, Suella Braverman, the former home secretary, was quick to lay the blame for Tory losses firmly at the door of Number 10.

But she said ousting Mr Sunak “won’t work”, adding: “The hole to dig us out of is the PM’s, and it’s time for him to start shovelling.”

She urged him to adopt “strong leadership, not managerialism” on tax, migration, small boats, and law and order.

But Mr Street took a different view, encouraging the party not to veer to the right.

Asked if he is worried the party is drifting to the right and over-emphasising the threat from Reform UK while “ignoring other voters”, the outgoing mayor told Sky News: “I would definitely not advise that drift.

“The psychology here is really very straightforward, isn’t it? This is the youngest, most diverse, one of the most urban places in Britain, and we’ve done, many would say, extremely well over a consistent period,” Mr Street said.

“The message is clear: winning from that centre ground is what happens.”

Results are in from 106 of the 107 councils in England that held elections on 2 May, and Labour has won 1,140 seats, an increase of more than 200.

The Liberal Democrats beat the Tories into second place, winning 521 seats, up nearly 100.

The Tories were just behind on 513 seats, down nearly 400.

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Conservative Andy Street suffers shock loss to Labour in West Midlands mayoral race in blow to Rishi Sunak

Published

1 day ago

May 4, 2024

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Conservative Andy Street suffers shock loss to Labour in West Midlands mayoral race in blow to Rishi Sunak

Tory incumbent Andy Street has suffered a shock defeat to Labour in the West Midlands mayoral election after a partial recount was ordered.

Labour’s Richard Parker beat Mr Street by just 1,508 votes – 0.25% – to deliver a major blow to Rishi Sunak in the key electoral battleground after a hammering in the local elections.

With the race neck-and-neck, in the end it came down to the results in one borough – Labour-supporting Sandwell.

“This is the most important thing I will ever do,” Mr Parker said in his acceptance speech.

“I promise you that I will deliver jobs,” he added.

He told Sky News he would take buses “back into public control” and deliver the “largest programme of social housing we’ve had in this region for more than 40 years”.

And he thanked his predecessor, who he said had “led this region through a number of great challenges and you deserve great credit for that”.

Mr Street told Sky News he was “personally devastated”, had “put my all into this”, and “genuinely believed we were making real progress across the region”.

He said it was “my campaign, totally”, adding: “I’m not going to try to push responsibility anywhere else. There’ll be no sloping shoulders from me.”

He wished his successor “all strength and wisdom”.

Labour leader Sir Keir Starmer said it was a “phenomenal result” and “beyond our expectations”.

He added: “People across the country have had enough of Conservative chaos and decline and voted for change with Labour.

“My changed Labour Party is back in the service of working people, and stands ready to govern.”

Local elections live
The mayoral election results

Ellie Reeves, Labour’s deputy national campaign co-ordinator, said it was a “significant victory”.

She added: “Right across the country people have voted for change and the message is clear – it’s time for a general election and a Labour government to get our country’s future back.”

Labour’s Sadiq Khan has secured a historic third term as London mayor with a convincing win over Conservative rival Susan Hall.

These results will increase pressure on the prime minister, who had been hoping for a repeat of the success enjoyed by Conservative Ben Houchen who held on as the mayor of Tees Valley.

Sam Coates, Sky News’s deputy political editor, said he had seen messages from Conservative MPs’ WhatsApp group.

One from former cabinet minister Simon Clarke, whom Coates said “wants Rishi Sunak to leave”, said: “These results are awful and should be a massive wake-up call.

“If we fight the same campaign in a few months [in the general election] we’ll get the same outcome or rather worse.

“Reform UK standing more candidates will cause greater damage.”

The loss of either the Teesside or West Midlands mayoralties would give Tory rebels who want to change leader a “huge amount of fuel”, former Scottish Conservative leader Ruth Davidson said in the Electoral Dysfunction podcast.

Mr Street, who was seeking a third term in office, sought to distance himself from the Conservative brand during his campaign and instead ran on a personal platform.

Sky News recently revealed that Mr Street was sending out election literature with an endorsement from former prime minister Boris Johnson which urged people to “forget about the government”.

His campaign website also made no mention of Mr Sunak on its homepage and was coloured in green rather than Conservative blue.