The pound was stronger yesterday but dropped slightly today following the fuel crisis. The government has the army on standby to help ease fuel supply problems following days of long queues, panic-buying and pump closures. Analysts warn that this will only offer temporary relief, and that the UK needs to do more to more find a more long-term and viable solution to its current HGV driver shortage.

Analysts have noted their concerns about the impact of fuel shortages on everyday life, soaring energy prices and labour shortages which could eventually dent the UK’s economic recovery.

Petrol supply

Fears of driver shortage hitting fuel supply has led to a surge in demand with up to 150 military tanker drivers ready to deliver to petrol stations which have run dry because of panic buying. There is no shortage of fuel, but simply a shortage of fuel in petrol stations, due to a lack of lorry drivers. While this was expected to have minimal effects, the problem has been exacerbated due to the behaviour of motorists who have rushed to stations panic-buying fuel. The transport secretary Grant Shapps said there were "tentative signs" of stabilisation in petrol stations and the Petrol Retailers Association said that the number of motorists at petrol stations was beginning to calm. As Shapps noted, "Once we all return to our normal buying habits... the quicker we get back to normality." The UK is short of more than 100,000 lorry drivers which has affected many industries, especially food suppliers and supermarkets.

In a joint statement, fuel companies, including BP and Shell, have reassured the public that supplies have not been affected and that demand will return to normal levels.

Higher Inflation Could Help the Pound Rise Higher

In the meantime, the pound is expected to rise as inflation pushes higher and the BoE is forced to raise interest rates. Higher inflation is the result of a combination of factors, including supply shortages and shortages of HGV drivers. While the central bank has stated that inflation is only temporary, there are concerns that it will remain high for a longer period of time.

Bank of England Governor Andrew Bailey has expressed his concerns about the current issues with supplies that have pushed inflation higher, and he noted that the Bank is ready to act if this becomes a long-term issue. He said that higher inflation can be dealt with higher interest rates and that a rate rise before the end of this year is not impossible.

The rising energy prices that have pushed inflation higher are a major concern in the UK, and the question is whether more persistent inflation than expected will prove to be the case and how the Bank of England will change its monetary policy to respond to this. The Bank of England last week warned that their forecast for high inflation at 4.0% will be exceeded. In August, the Bank raised their peak forecast from 3.0% to 4.0%.

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The UK’s supply problems could push the pound lower despite that the market has priced in more interest rate hikes by the Bank of England for next year. The government has offered temporary visas to fuel tanker and food lorry drivers, and to poultry workers. Britain's ongoing supply chain crisis could threaten the UK’s economic recovery, and combined with higher inflation, it could post serious risks to the pound.

Visas to lorry drivers

With Christmas just around the corner, the government is seeking to avoid disruption and will provide up to 10,500 lorry drivers and poultry workers with temporary UK visas. 5,500 poultry workers and another 5,000 fuel tanker and food lorry drivers will be allowed to work in the UK for three months, until Christmas Eve. The Road Haulage Association said the government’s announcement "barely scratches the surface", and that just offering temporary visa for a limited period "will not be enough for companies or the drivers themselves to be attractive." Director of the HGV Recruitment Centre, Marc Fels, said visas for lorry drivers were "too little" and "too late." The move is, however, a huge step forward in providing a temporary solution to supply chain disruption. The government has also requested from the Ministry of Defence examiners to increase HGV (heavy goods vehicle) testing capacity and sent one million letters to drivers who have an HGV licence to return to the industry. 

Various industries such as supermarkets and food chains have reported shortages of lorry drivers, while fuel deliveries have also been affected, with queues at petrol stations as consumers are panic buying despite calls from the government that the UK has plenty of fuel.

Petrol Crisis

Transport Secretary Grant Shapps has stated there was enough fuel and that people should only fill up when needed to avoid creating shortages. He said there were no supply problems at the six refineries and 47 storage facilities, and that drivers and motorists needed to “be sensible.” With the petrol crisis deepening, ministers have been forced to suspend competition law to help oil companies support petrol stations that are running dry, after days of panic buying. Following a meeting with oil companies on Sunday, business secretary Kwasi Kwarteng agreed to allow companies in the oil industry to work together, sharing information to keep petrol stations topped up.

The panic buying and shortage of drivers has also led the government to consider an emergency plan. The prime minister and senior members of the cabinet will examine “Operation Escalin” after BP reported that a third of its petrol stations had run out of the two grades of fuel, and the Petrol Retailers Association (PRA), said that 50% to 90% of its members were also running out, with more to follow.

Operation Escalin was first conceptualised as part of the planning for a no-deal Brexit, and involves  hundreds of soldiers being drafted in to drive a reserve fleet of 80 tankers. The Prime Minister will consider the Escalin and other proposals on Monday afternoon, in a meeting where ministers will also discuss ways to stop people from panic buying. Shortages could continue if people’s behaviour did not change.

The UK could also face a national shortage of turkeys in the run-up to December, with labour shortages due to Brexit.

 

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are transferring funds to pay your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.