The Effect A Poor Pound Is Having On British Businesses

Posted by Allison on 1 April 2009, 16:34

If you own a business, how are you faring against the economy and the weak pound?

There is no doubt that many businesses are really struggling to weather the current situation. Even the January sales that some businesses are throwing in order to try and bring in more money aren't having the effect they would like. And Christmas sales didn't act as a saviour either. This article from Bloomberg – gives you an idea of the current situation and how it might develop.

But how do businesses fare if they are trading abroad? The answer depends on what currency they are receiving for their troubles.

Freelancers in particular have actually enjoyed something of a pay rise since the pound took its well publicised drop in value during 2008. Those working from home and accepting work from all over the world generally work in US dollars, regardless of what country they are working in. It is, after all, pretty much the accepted currency of the internet.

So what does that mean for British freelancers?

Well let's take a look at an example. Way back on the 1st January 2008, the exchange rate was fixed at 2.0073. That meant that every pound was worth $2.00. So a freelancer being paid $200 for a job would have got £100.17 for their efforts.

The highest rate of the year – an exchange rate of 2.0340 which occurred on the 13th March – would have translated into an actual payment of £99.30. Now that doesn't sound like much of a difference, but remember that we are only looking at one small amount here of $200. Over the course of a year that would have a distinct effect on the actual earnings being brought in.

And of course as the year went on, the exchange rate got even worse. That same $200 job on the 31st December would have got you £138.19. That represents an extra £38.89 in wages for doing exactly the same job.

So perhaps it isn't so surprising that a small percentage of British workers are quite content for the exchange rates to stay at the level they are currently at. They are probably among the few people who have actually got what amounts to a pay rise for doing what they enjoy – without even having to ask for it.

Of course, the exchange rates change on a daily basis so there is never any certainty over what the final payment will be, once you have converted it. What's more, the other aspects of the economy may mean less work for freelancers if they don't put the effort in to ensure it is constantly coming in.

Some people do say that there is always a silver lining to any cloud, but you really have to look hard to see this one. After all it only affects a relatively small group of people, and everyone else will be looking at their currency converters and wondering where the advantages are for them.

There is no doubt that the current state of affairs is likely to continue for the immediate future. Whatever happens during 2009, it will be interesting to see whether the freelancers are still celebrating this time next year – or whether sterling will have become stronger once more.