The pound and employment – why a falling currency should be good

In light of poor and fast declining economic data, and media comments by both the Bank of England and the Prime Minister that the UK was in a recession, the pound has dropped to low levels against the US dollar. Since July, it has fallen by 25% in value, from $2.00 to $1.50 to the UK pound.

If you look at this further, it gets to be a consistent pattern of the pound dropping in value against numerous currencies:
- 220 to 160 against the Japanese Yen (27%)
- 86 to 74 against the Indian Rupee (14%)
- 1.40 to 1.25 against the Euro, although in the past three months it has been quite stable (10%)

However, all this bad currency data could be good for UK employment: that holiday in Florida, the most popular location for Brit’s abroad, is now 25% more expensive. It makes Margate look a lot more attractive, and a lesser drop against the Eurozone makes the Mediterranean interesting for guaranteed sunshine

But that’s consumer spending – what has it got to down with your job?

When I ran a large UK Call Centre design team – we turnover £127million in the last year I ran the team – we were faced with the onslaught on the overseas location. The main reason was, it was cheaper to run. We were at a disadvantage any way, as we worked for the most expensive telecoms company in the market by around 15% to 25% - so just selling in the UK was a chore, let alone against Phuket or Mumbai!

One of the most powerful statement’s I have ever been taught was as an engineer in Bournemouth, being taught how to sell modems. The trainer taught us that learning lists of features was fine, but what was the business benefit? To find them, he taught us the statement “Which means that…..” So for instance, a dual processor design meant better up time, which means that you don’t need to design in as much redundancy to ensure critical delivery – that actual line won us a £15million contract with Chase Manhattan, and meant we also won a contract into just post communist Russia!

So, for UK businesses exporting, what does a quickly falling pound mean? Take Jaguar cars for instance – the £35,000 XJ top line saloon is now 25% cheaper at the dock in New York. That is also true of the 50mpg BMW Mini, and in a country which is running scared of their beloved SUV’s and not having enough for a deposit for one anyway, a cheap and economical branded car should sell well.

What about call centres? I always felt the flight to India was short termed in sight. The way we overcame selling at a premium UK price was to train engineers who designed whole customer service solutions, over just the flashing light telephone bit in the middle. We hence thought about market position, registration, time to answer, environment (yes, we had colour awareness training!), and follow-up. It meant when you engaged us, you engaged a whole solution over an engineer – hence why we did £127million, or 53% of then BT Solutions group turnover. Hence from my point of view as a whole solution, the mass flight of call centres to India was illogical and daft, when the majority of the customers were over 50, and couldn’t understand many UK call centre operators, let alone someone who had never been to the UK apart from watching an episode of Eastenders. The clear result would be greater market switching, which those who either choose to stay in the UK or were to slow to react would suddenly find the results of – Nationwide made a conscious decision to leave their call centres in the UK, and took a 20% boost in business.

We have in the past two years seen a flight back to the UK as annual market switching rates in financial services rose from 10% to 35% , but the back offices – rightly – have stayed in the cheaper economies of India. However, many organisations which don’t benefit from scale economies are finding the communication lines stretched, and hence projects delivered late: its why there is a boom in need for qualified project managers, but the problem is communication.

So, what will be the effect of a falling currency? We are in a recession in the UK, and reduced consumer spending (probably agitated further by higher high street prices) will result in increased unemployment: but to stay employed, you just have to get focused, there are many opportunities. However, with a quickly falling currency, the rates of UK export will quickly rise – plus financial services will recover, as UK law is open, stable and friendly: thank you Sarbanes Oxley! I expect to see the result in the UK balance of payments by mid-2009, and it’s why BMW are choosing to lay-off over redundancy until Easter: because they know what the reaction could be, and there is still a skills shortage in the UK labour market of engineers. Any decision announced to outsource offshore in the past 12months that has not yet been implemented I am sure is being looked at by every Finance Director right now – it not only requires an often capital sum to achieve, it also now is looking around 20% less cost effective.

Clearly there will be redundancies, as UK companies can’t bleed to death through lack of cash when they can’t borrow. But the depth of the redundancies may not be as high as suspected – such a sharp fall in the UK sterling is like installing a rubber floor as a safety precaution, and make FD’s listen to HR directors about long term skills shortages as there is a tightening of the pull of export sales.

Good Luck!