The current strength of the pound could prove to be a boon for UK travellers preparing to head overseas as the holiday season kicks in, but it is not helping the cause of those wishing to see a proper rebalancing of the economy. Indeed, earlier this week the International Monetary Fund (IMF) warned that sterling is overvalued to the tune of 5-10 per cent and that this could hamper rebalancing efforts as the strength of the currency is likely to perpetuate domestic spending and imports whilst reducing the competitiveness of exporters.
And the latest round of results from some of the FTSE 350’s biggest international operators have starkly illustrated the problem. This week British American Tobacco said that its profits had taken a 10 per cent hit due to currency movements and PZ Cussons also bemoaned currency effects on its performance. Even the likes of ITV and National Express said that translation of profits from their US operations had been hit by sterling’s strength. Prolonged overvaluation against the currencies of key competitors could also pose a risk to exporters in sectors such as engineering where pricing is key. On the flip side, however, companies that buy a lot overseas goods for sale in the UK, such as high street retailers, could see some benefits in currency translation and, consequently, margins.
