shoppingThere are winners and losers in every change and this also holds true for changing currency values. In the most basic terms, a weak pound means that you need more pounds to buy other currencies and less of another currency to buy pounds. An effect of this is that in practical terms, it costs more to buy in goods from overseas and less for people overseas to buy goods from the UK. As with many aspects of life, however, in the real world the situation can be a bit more complicated. Let’s take a look at how a lower pound can impact the high street in ways which may be less than obvious.

House prices and the high street

The UK housing market is core fodder for the press and can easily make headlines in the main body of popular newspapers rather than simply being relegated to the financial section. The weakness of the pound is almost guaranteed to have an impact on the housing market, although precisely what that overall impact will be is still unclear. The lower cost of doing business in the UK may attract international buyers and investors, but it may also make life more challenging for those looking to move abroad, who need to be able to finance a property purchase there. It may also influence how many international construction workers and tradespeople work in Britain. If house prices show signs of rising, then this may increase consumer optimism, but it may also mean that first-time buyers and those looking for bigger property may start to channel their disposable income into building up a deposit rather than using it for consumer spending. If house prices fall, it may drive some home owners into negative equity, for which they may try to compensate (or be obliged to compensate); thereby reducing the income they have available for consumer spending. On the plus side, however, lower house prices are great news for first-time buyers (and tend to be good news for those trading down), who could then use their disposable income on house-related consumer purchases (new appliances, furniture, décor etc.).

Holiday prices and the high street

Low fuel prices may be good news for the aviation industry, but a weak pound makes foreign holidays more expensive as it raises the effective price for everything from accommodation to food and entertainment. While the obvious candidates to feel the pain of this are travel-related companies such as travel agents and airlines, this could also have a trickle-down effect on other businesses. For example, holidays abroad can entail the purchase of new luggage, clothes and toiletries and may involve spending at airport stores. If foreign holidays become too expensive for the average consumer, they may choose to save their money instead, which could have a negative impact on the high street, alternatively they might choose to spend their money in other ways, in which case the high street might even benefit.

Employment and the high street

Employment is a major factor in whether or not people have disposable income to spend on the high street. A weak pound can make UK exports more attractive, although exporters will still have to account for the cost of buying in materials from overseas. A weak pound can also make the UK a more attractive prospect for investors when compared to lower-wage economies. At the same time, it can make imports more expensive and leave some retailers with a decision as to how much of the price increase they can absorb and how much they can, or want to pass on. If there is high employment, retailers may opt to absorb the price increases and compensate for the weak pound with higher demand. If, however, employment is weak, then retailers may have little choice but to pass the cost on to those who can still afford to pay it.