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Exchange rate starting to bite for university costs

Sterling is going down, and inflation is going up. But for some large costs for universities, inflation is far higher than the nationally reported rates. Just another way Brexit is hurting higher education in unexpected places...
This article is more than 5 years old

Ant Bagshaw is Partnerships Director at OES UK

It will not have escaped your attention that, following the referendum decision to leave the EU, the price of sterling has dropped significantly. The impact on universities is becoming increasingly clear as costs are already rising and the future looks even more expensive.

Anyone taking a foreign holiday over the summer will have felt the pinch of the pound’s devaluation. And the summer was followed by news of the rising costs of Marmite and negotiations with the major supermarkets about where the burden of higher costs could and should fall. The Chancellor put a number on it in his Autumn Statement: “Sterling depreciated 14.2% on a trade-weighted basis between the beginning of June and the end of October.”

For universities, the fall in the pound’s value could help international student recruitment, counterbalancing negativity resulting from the referendum result. However, the gains for students will be felt by the individuals, while the institution continues to receive its fees at the sterling rate.

However, all things aren’t equal and universities are feeling the pinch of some significant in-year price rises. Where foreign companies have profit targets in dollars, euros or yen, parent companies are squeezing what they can from UK sales. This is resulting in a combination of spending reductions such as cutting marketing budgets, and price increases. While many businesses will be able to smooth the effect on their operations and customers with currency hedging, these facilities will be time limited and a ‘new normal’ could be not far away.

For the IT community, there have already been increases in costs for equipment. Microsoft and Apple, two of the major providers, have notified the sector that 2017 will see increases of between 13% and 22%. Where contracts are due for renewal, universities are expecting to see increases for future procurement rounds. On one capital IT project, a university has seen average price increases of nine per cent, with some costs escalating by 32%.

Where libraries have contracts for journals agreed in foreign currencies, they are also seeing major in-year price increases. Escalating costs of up to £500k have been reported by individual universities, with a wide variation in the capacity of each institution to absorb such swings.

When we consider the recent news from HEFCE on the worsening financial health of English universities, the inflationary pressures must give further cause for alarm. Some institutions anticipate only wafer-thin surpluses and so these additional costs will eat into those meagre cushions. Further savings are likely to be necessary, hitting the student experience at a time of increasing competition.

Currency fluctuations are nothing new, and universities as large and complex businesses will have some experience and options for responding to the recent change. But the suddenness and scale, and the lack of anticipation of the change, may leave some more exposed than others to this topsy-turvy period.

Wonkhe is grateful to UCISA and RLUK for sharing anonymised information about the impact of price rises on their member institutions.

One response to “Exchange rate starting to bite for university costs

  1. It’s perhaps worth saying that the important British University sector that has unquestionably seen significant short-term gains from the fall in £sterling has been the University Presses, almost all of whom have seen sharp sales increases since June 23rd. Despite sourcing important levels of supply and services in non-sterling locations (notably India), the net impact for the majority of British UPs from this currency devaluation has been positive: the UK itself is very much a minority sales destination for most British-based UPs, and indeed for some of the larger ones can constitute as little as 10-15% of global sales. The fall in sterling has also accelerated, markedly, levels of ‘buying-around’, where global customers (e.g. library suppliers like Baker & Taylor) source in the cheapest possible location, but may well be distributing to the same end-customer base as before: hence some reported major falls in North American sales and even larger increases in domestic sales may in fact simply be two sides of the same coin, with the books still ending up in North America (with consequent happiness for shippers, inter alia).

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