LONDON (AP) — Like many small business owners in Britain, Harry Niazi hoped the government would help keep his south London fish and chip shop going in the face of soaring energy bills and soaring electricity bills. inflation.
But an economic stimulus package announced last week by the new government of Prime Minister Liz Truss has brought no relief, far from it.
For Niazi and millions across the UK, things have gone from bad to worse after the promise of huge unfunded tax cuts sparked financial market turmoil and sent the pound plummeting to a record high against the US dollar this week.
“Everything is based on the dollar — diesel for the vessels that catch fish, the trucks to deliver our products. It has a big impact,” Niazi said from his takeout shop, Olley’s Fish Experience.
The fall in the pound is hitting many businesses hard, as imported materials and products like natural gas that are priced in dollars will be more expensive. Businesses will likely be forced to pass the costs on to consumers, pushing inflation even higher – already near a 40-year high of 9.9%.
It would add to the pressure on people facing a further rise in their home energy bills on Saturday, even if Truss’ plan capped a more devastating 80% increase as natural gas prices soared.
“I’m afraid to raise my prices. We have a good volume of customers coming in, we don’t want to lose them, but every day the price is going up. I don’t know how we are going to cope,” Niazi said.
The haddock, cod and other white fish he imports are priced in dollars, and that cost had already risen since July, when the UK government imposed a 35% tariff on seafood imports Russians in the context of sanctions against the war in Ukraine.
Niazi’s concerns about the slide in the pound are echoed by other businessmen like Sanjay Aggarwal, co-founder of Spice Kitchen. The Liverpool-based company sells gift sets of Indian spice mixes packed in steel boxes from Indian manufacturers.
Boxes and shipping — the two biggest costs in his business — are both billed in dollars.
Aggarwal said he had already been forced to raise prices this year due to rising steel prices. Shipping costs, too, have skyrocketed since hitting rock bottom during the depths of the coronavirus pandemic. The cost of shipping a container from India to Britain has quadrupled since 2020 to around $8,000-9,000, he said.
His last delivery is already on the way in time for Christmas, but he is preparing for a price shock when he has to place his next order.
“We’re impacted because we’re playing globally,” Aggarwal said. “So any future orders we place now will cost us 20% more.”
Beyond Britain, the dollar hammered many other global currencies, fueled by the better-performing US economy and the Federal Reserve’s aggressive interest rate hikes luring investors. The strength of the dollar also pushed the euro below parity and sent the Chinese yuan to its lowest level in 14 years. The US dollar index, which measures the greenback against six other major currencies, has jumped 18% this year.
The British Wine and Spirits Trade Association has warned that the fall in the pound sterling ‘will drive up prices for consumers and threaten hundreds of British jobs in UK bottling plants’.
The trade group said a fifth of all bulk wine imported into the UK for bottling comes from the United States.
Miles Beale, the group’s chief executive, said that although the government’s measures included “laudable” plans to freeze alcohol taxes, “the pound sterling against the dollar has both usurped them and carried a blow to British wine businesses and consumers”.
The mood of uncertainty has intensified since the government unveiled a plan to cut 45 billion pounds ($48 billion) in taxes, but no details of the spending cuts, meaning they will be financed by public loans. Officials also want to spend billions more to subsidize soaring home and business energy bills.
The plans have sparked widespread concern from economists and investors about rising public debt, and the International Monetary Fund has warned the moves could worsen inflation and the cost of living crisis.
The Bank of England has so far refrained from an emergency interest rate hike to offset the inflationary impact of the falling pound, but many expect the central bank to increase its rates quickly.
This has caused panic among many homeowners accustomed to interest rates that have remained low, at around 2%, for years. A sudden large increase in borrowing costs will make mortgages unaffordable for many.
Dee Corsi, chief executive of the New West End Company, a group representing hundreds of shops, hotels and restaurants in London’s famous Oxford Street shopping district, said she was sure those concerns would weigh heavily on consumers.
“We could benefit in the short term from an increase in tourists, especially from the United States” due to the weaker pound, Corsi said.
“But in the long term, the fall in the pound will drive up the cost of all imports for businesses,” she added. “And with the cost of living crisis – we can’t not talk about it – and with the increase in mortgages, I absolutely think people will be more careful with their spending.”
For some business owners, the economic plan that is dividing the Conservative Party could alienate them in other ways as well.
Niazi, the fish and chips owner, is a Conservative Party voter but said he was disappointed with the government and would “most likely” not support the party in the next election.
“I don’t know anything about running the country, but I know what the government is doing is hurting everyone,” he said.
“It’s not working, something is wrong,” he added. “They have to fix it.”
Sylvia Hui and Kelvin Chan, Associated Press
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