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Plummeting pound: the impact on employers

The rapid devaluation of the pound will mean further inflation, potential interest rate rises and make it more difficult to attract overseas talent, according to economists.

The pound fell to record lows against the dollar following chancellor Kwasi Kwarteng’s mini-budget announcement on 23 September, which included the UK's biggest tax cuts in 50 years. 

Falling to a record low of just $1.035 on Monday, the pound stabilised at $1.08 and €1.12. 

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Tony Wilson, director of think tank the Institute for Employment Studies, said the pound’s slide would make life costlier for both employees and employers.

Speaking to HR magazine, he said: “The main effects that we’ll all feel from a falling pound will be higher inflation due to more costly imports, and faster interest rate rises as the Bank of England tries to steady the ship.”

Food and petrol were among the most likely goods to rise in price, he said, meaning employees struggling with the cost of living may face further difficulties.

The new budget may also mean an increase in the cost of housing and business, as the Bank of England looks set to increase interest rates again to tackle inflation.

Reports suggest the interest rate may rise as high as 6% by late 2023. Any rise in interest rates will mean higher mortgage payments, and subsequently rents.

Carsten Jung, senior economist at the IPPR think tank, told HR magazine: “The tax cuts – mainly benefiting the wealthy – are doing exactly the opposite of what the economy needs right now. They push up inflation now but are very unlikely to deliver growth in the future.”

Several major mortgage lenders, including the Bank of Ireland and Clydesdale Bank, have temporarily stopped issuing mortgages because of instability in the financial market.

“The market turmoil and economic uncertainty this irresponsible budget has caused is further exacerbating these problems,” Jung added.

A weak pound may make it difficult to attract overseas workers, according to Lee McIntyre-Hamilton, employment tax specialist at Keystone Law. 

He said: “If sustained, the fall in the pound to current levels will make it harder for UK firms to attract foreign talent to work in the UK. For example, a £100,000 salary is now worth around £6,000 less to a US national thinking of taking up UK employment.”

However employees seconded to the UK by non-UK firms and paid a non-GBP salary into their UK bank account will find their income increases. 

Because many employers settle tax on behalf of the seconded employee, the tax cost for the employer will increase – with the same applying for companies that settle seconded employees' NIC costs.

McIntyre-Hamilton added: “Some UK employers, who are hosting dozens and sometimes hundreds or thousands of such secondees in the UK are likely to experience a significant negative cost impact.”

The pound’s slide may not affect all sectors equally, when it comes to attracting foreign talent, however.

According to Wilson, lower-paid and temporary roles are likely to be especially badly affected, but with the fall in immigration after Brexit, this may not be noticed as much as it otherwise might have been.

He added: “It's possible that in higher skilled and better paid jobs in professional services and finance, the global workforce will either take jobs elsewhere or expect to be paid in dollars or euros.”