Shilling slumps against the British pound by 11 percent since JanuaryWednesday April 19 2023
The shilling has depreciated against the British pound by 11 percent since the beginning of the year, boosting the earnings of horticulture exporters to the UK and parts of Europe that trade using the currency.
A unit of the UK currency was exchanging at an average of Sh166.90 on Tuesday, up from Sh148.47 at the start of the year. It touched a historic high of Sh168.23 last Friday.
The pound, like the US dollar, has benefitted from a flight of capital to Western markets on the back of aggressive interest rates hikes due to high inflation—with the Bank of England raising its benchmark rate multiple times to a 15-year high of 4.25 percent last month from near zero in December 2021.
Kenya’s trade with Britain is mainly carried out using pounds, while in mainland Europe it is done using a mix of pounds and euros.
Read: How plunging UK pound against dollar is affecting Kenya
The bulk of international trade is, however, carried out using the greenback.
"The strength of the pound means we get higher earnings when we exchange the currency,” said Clement Tulezi, CEO of the Kenya Flower Council (KFC) and chairman of the National Horticulture Taskforce.
Kenya sells agricultural produce such as cut flowers, vegetables, fruits, coffee, and tea to the UK, and in turn buys vehicles, machinery, and alcoholic beverages like spirits, pharmaceuticals and electronics from the European country.
The stronger pound favours Kenya due to the country holding a trade surplus with the UK.
Exports to the UK stood at Sh44.3 billion in 2022, having dropped from Sh49.40 billion in 2021.
The drop was attributed to the strained political climate due to the general elections and drought that affected tea and flower exports.
Imports increased by 8.7 percent to Sh36.52 billion from Sh33.59 billion over the period.
The weakening of the shilling against the pound coincides with a similar slide to a record low against the dollar, which has been on the front foot against most global currencies.
Read: Why is the Kenya shilling losing against US Dollar?
Central Bank of Kenya (CBK) data shows shilling was exchanging at an average of 134.73 units to the dollar on Tuesday, having shed 8.4 percent since the start of the year when it opened trading at 123.37 units.
It has been pressured by higher demand by importers amid reduced supply in the market.