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Economic Environment | Exchange Rates - the Pound Gets Weaker and Weaker

Jim Riley

25th September 2022

Never mind SPICED. it's WPIDEC we need to remember when thinking about how the plummeting value of the Pound against other major currencies might impact businesses and consumers.

A good explainer article here from the BBC on the household finance and business implications of the continued and significant fall in the exchange rate of the Pound against the Dollar and Euro.

The value of the pound has fallen to a 37-year low against the dollar following the mini-budget.

It seems almost unthinkable that one Pound might soon be worth the same as one Dollar or one Euro, but perhaps that is where we are heading.

So, back to SPICED and WPIDEC.

SPICED is the acroym to remember what happens when a currency's exchange rate strengthens.

STRONGER POUND =

IMPORTS CHEAPER +

EXPORTS DEARER

But, we're now seeming the Pound get weaker. So, reverse the acronym to WPIDEC

WEAKER POUND =

IMPORTS DEARER +

EXPORTS CHEAPER

A weak Pound should, therefore be good news for UK business exporting to other countries. The fall in the value of the Pound makes exporter products more price competitive.

However, for most of us, WPIDEC is bad news.

The cost of goods and services imported into the UK will rise, further fuelling the cost-push inflation that the UK economy is experiencing. Oil, for example, is priced in dollars, so petrol prices will rise.

Jim Riley

Jim co-founded tutor2u alongside his twin brother Geoff! Jim is a well-known Business writer and presenter as well as being one of the UK's leading educational technology entrepreneurs.

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