LONDON — The UK economy has been hit hard by the effects of Brexit, the war in Ukraine and most recently the government’s dramatic rollback of a series of planned tax cuts that led to the resignation of Prime Minister Liz Truss. But for Scottish whiskey producers, business is booming, and the sharp depreciation of the British pound against major currencies has made whiskey more affordable for buyers outside the UK.
“Currency has had a big impact, no doubt about it,” said John Stirling, co-founder of Scotland’s Arbigey Distillery.
Whiskey exports from the UK have increased over the past two years, up 10.5% year-on-year in the 12 months to July, according to government data.
Growing demand from the United States and the Asia-Pacific region has driven exports soaring as 20 distilleries have opened in Scotland in the last six years, bringing the total number of distilleries to 141.
The pound is trading at historically weak levels as demand for Scotch increases. Last month, the pound fell briefly against the dollar to $1.035. Mr Truss’ economic reforms, including £45bn ($50bn) of underfunded tax cuts, have left investors uneasy. Since then, her government has pulled back almost all planned rate cuts, but the pound’s fall has been more pronounced against major currencies, including those used in the United States, France, Taiwan, India, Singapore and China. was part of the trend. Scotch. Government data showed that 18% of whiskey exports went to the United States in the year ending July.
The UK has also faced systemic economic problems since leaving the EU in a referendum in 2016, including declining productivity, low wage growth, labor shortages and unstable business investment. increase. On Wednesday, the government reported that the country’s consumer prices rose 10.1% in the year to September, he said. This is partly due to food prices recording their biggest rise in over 40 years.
The International Monetary Fund forecast the UK economy to contract by 0.3% next year from 3.6% growth this year, as high inflation is expected to weigh on private consumption and business investment.
But whiskey companies like James Eadie have weathered the economic headwinds.
James Eatie CEO Rupert Patrick said: “We were all scratching our heads as to why it was so good at this point.”
Inflation FAQ
What is inflation? Inflation is the loss of purchasing power over time. So your dollar won’t go as well tomorrow as it did today. This is usually expressed as annual fluctuations in the prices of commodities and services such as food, furniture, clothing, transportation, and toys.
One possible factor, Patrick said, is that advertising campaigns by several large beverage companies that have acquired smaller distilleries in recent years have helped spread the appeal of whiskey to younger consumers. rice field. for example, Ad published last week Parks and Recreation actor Nick Offerman by Diageo, an alcoholic beverage company for whiskey distillery Lagavulin, also made an appearance, along with an Instagram live tasting with the distillery’s master blender.
In the past, Scotch aficionados might have disdained anyone who mixed it with just cola or ice and water. said Patrick.
About 90% of Scotch is exported, according to the Scotch Whiskey Association, an industry trade body. The most valuable market is the United States, where about £1 billion ($1.1 billion) of whiskey was exported in the past year after President Biden suspended tariffs on Trump-era Scotch whiskey.
Leonard Russell, managing director of Ian Macleod Distillers in Scotland, expects the weaker pound to have a positive impact on whiskey exports, but increased demand for premium Scotch whiskey from Greater China is likely to hurt his company. said to be the biggest driver of growth.
A weaker pound could benefit exporters, but it also means that imported components such as barrels from the US will be more expensive. One British pound buys 19% fewer dollars than it did a year ago. However, whiskey producers are more shielded from rising import costs than other companies because most of their raw materials, such as barley, are domestically sourced.
Others, such as British carmakers, rely heavily on imported parts that have become more expensive. So the decline in the value of the pound since the 1980s has not been reflected in the sustained and strong performance of export-focused firms, says Diana Her Coyle, a professor of public policy at the University of Cambridge. increase.
“People in favor of depreciation have always argued about exports, but that doesn’t seem to be backed up by history,” she said.
Whiskey exporters have reported high demand so far this year, but have also had to contend with challenges facing other British companies, including skyrocketing borrowing costs. This has reduced consumer disposable income and made it more expensive for businesses to obtain loans.
William Wemyss, founder and CEO of Wemyss Malts, said some whiskey producers are dependent on financing because it takes years, even decades, to bring their whiskey to market. said. As such, whiskey producers have been the main beneficiaries of recent low interest rates. “The fact that they are currently on an upward trajectory will be more problematic for the industry,” he said.
Rising energy prices are also hitting distilleries because the whiskey-making process, which involves germinating and drying barley, is energy-intensive. Investigation A study released in August by the Scotch Whiskey Association found that nearly a third of distilleries have doubled their energy costs.
Still, Wemis said he expects global demand for single malt whiskey to remain strong.
“I think scotch is very resilient, but you know, the proof of that is in the puddings in the next year or so,” Wemis said.