Brexit, the Falling Pound and John Lewis Gross Profit Margins

The impact of a falling exchange rate are illustrated with this recent warning from John Lewis on the effect of a significantly weaker £/$ exchange rate.

Following the UK’s Brexit vote in June 2016, the £/$ exchange rate fell sharply to a 30-year low.

As this news article explains, the CEO of John Lewis has warned that this will impact the firm’s profit margins. John Lewis imports about two-thirds of the goods it sells and one third of that is purchased in dollars.

A weaker £/$ exchange rate makes the £ price of supplies bought in dollars more expensive. Can these higher input prices be passed onto consumers? That might be difficult given the highly competitive nature of retailing and concerns about declining consumer confidence in the UK as a result of Brexit.