Losing almost a tenth of its value against the dollar in the past few months has left sterling hugging a 2½-year low. And few are betting on a quick recovery given the steady flow of poor data, a credit rating downgrade and likelihood of further quantitative easing. If that happens, exporters will let out a huge cheer and investors should, too.
Companies which report in sterling, but generate a slug of earnings overseas, most likely in dollars and euros, will feel a warm glow as those profits are converted back into pounds. "Most exporters will get a double-whammy from the translation effect and competitiveness gains, too," explains Investec Securities economist, Philip Shaw.
That’s great new for UK engineers who make less than 10 per cent of earnings on home soil these days. For Renishaw (RSW), Fenner (FENR), IMI (IMI) and Melrose (MRO) it’s less, and not much more for aerospace firms Bodycote (BOY) and Senior (SNR). At plastics group Victrex (VCT), everything is made at its plant near Blackpool and shipped abroad. Watch the value of dividends paid in foreign currencies soar, too.
But if only things were that simple. "Many manufacturers have shifted production to low-cost sites overseas and those that do make things here are hedged a year or two forward, which means any positive impact won't come through for a while," says David Larkam at Arden Partners. "Most raw materials, including oil, are priced in dollars, too, and so become more expensive."
Still, time is on their side. "It's easier to spot the downside than the upside for sterling at the moment," admits Mr Shaw. With the US economy in much better shape than ours, American policymakers look far more likely to turn off the taps than their counterparts in Threadneedle Street. Plus, any overhaul of the Bank of England’s mandate in Wednesday’s Budget would give Mervyn King and incoming governor Mark Carney sufficient leeway to set far more aggressive monetary policy, too.
