Slide in pound boosts UK jewellery exporters, drives up costs of imported precious materials

28 Sep 2022

By David Brough

A deepening slide in the pound following the mini-budget on September 23, will boost the competitiveness of UK jewellery exporters, but will challenge margins of jewellers heavily dependent on imports of precious materials such as diamonds and gemstones.

The pound fell to a record low against the dollar, close to $1.03, after the mini-budget, boosting the competitiveness of companies that manufacture and export jewellery, such as Hockley Mint and Domino.

In the mini-budget Chancellor of the Exchequer Kwasi Kwarteng announced sweeping tax cuts to stimulate economic growth.

“The weak pound also makes us more competitive in the home market,” said Gary Wroe, CEO of Birmingham-based Hockley Mint, which manufactures and exports to Europe and beyond.

For UK jewellery businesses which rely heavily on imported precious materials, diamonds and gemstones, denominated in US dollars, the slide in the pound has hit margins.

Despite the fall in gold prices to a 2-1/2-year low in dollar terms, the yellow metal is still expensive in pounds.

“We are astonished by how much the prices of raw materials have risen,” said Jaysal Pattni of Tooting-based Minar Jewellers.

A big challenge facing jewellers is how to tackle the impact of high inflation on their businesses, with customers facing surging energy and food costs.

The Bank of England extended its recent tightening of monetary policy and raised interest rates by 0.50 percent on September 22 in a bid to control inflation. Now there is speculation in financial markets that the UK central bank may soon sharply raise rates again.

In the jewellery sector, wholesalers are expected to pass on price increases to retailers, who will raise prices to their customers, or face squeezed margins.

Dinesh Parekh of Birmingham-based wholesaler Just Diamonds has said he would have to increase prices of products in his core diamond jewellery range because of the slide in the pound.

Retailers will do everything they can to avoid reducing their margins.

"I think jewellers will have to pass on price increases, but this will have the effect of boosting the value of their turnover," said Himanshu Shah, director of Hatton Garden-based diamond jewellery supplier Andre Michael. Jewellers may turn increasingly to 18-ct yellow gold instead of 18-ct white gold as yellow gold does not include costly dollar-denominated palladium, and in lower market segments, an ongoing shift to supplying 9-ct gold instead of 18-ct gold, is likely to continue, jewellers say.

NAJ Chair Heather Callaway urged people to seek regular professional appraisals of their precious goods to protect insurance valuations in inflationary times.

Corporation tax

The government’s decision not to increase corporation tax, will strengthen the cash flow of jewellers who will be able to afford more easily to pay rising wages and other costs.

“Cancelling rises in national insurance and corporation tax will reduce the cost pressures on many jewellery businesses and so too will the plans outlined to work with energy suppliers to reduce wholesale gas and electric costs,” said Heather Callaway.

“The measures will be a relief for most members who can now focus on a crucial quarter of trading, hopefully with domestic consumers now buoyed by the support for households, and international visitors benefiting from the reintroduction of VAT free shopping in the UK.”

UK luxury jewellers, including Bond Street and Hatton Garden retailers, will get a sales boost from the government's decision in the mini-budget allowing non-UK shoppers to claim back Value Added Tax (VAT) again. The exemption had ended last year. Jewellers such as Buccellati and Hirsh London had lamented the ending of the exemption as their clientele

includes wealthy non-British luxury tourists. Such tourists will be able to claim back 20 percent VAT on luxury jewellery purchases when they leave the country. The tax cuts benefiting the wealthiest in society, including abolition of the 45 percent top rate of income tax in the mini-budget, may bolster sales of top-end jewellery, benefiting the so-called "county jewellers" which belong to buying groups such as Houlden.

The sharp rises seen this year in natural diamond prices may lead to rising customer demand for cheaper lab-grown diamond jewellery, forcing retailers to increase the variety of lab-grown diamond jewellery stock in their shops, jewellers say.

UK jewellery trade shows this year have seen a jump in offerings of lab-grown diamond jewellery, in the face of squeezed earnings by middle-income consumers, hard hit by high inflation amid worries over recession driven by surging energy prices following the Russian invasion of Ukraine.