Danger Mouse Tried to Warn Us About Greenback

Back in the '80s and '90s, British kids watched the adventures of Danger Mouse and his assistant Penfold as they fought the unhelpful interventions of Baron Greenback. 

Thirty years on, many of those kids work in IT and are fighting against unhelpful interventions from another greenback - the US dollar.

The value of a pound has fallen from $1.4467 on June 1st 2021 to $1.2099 today (16th August 2022). US technology firms have raised their prices in return - with a 12% sterling price rise required merely to maintain existing dollar revenues.

Will UK IT Costs Rise Further Due to the Greenback's Appreciation?

The derivatives market suggests not.

By September 2023, the USD/GBP exchange rate is expected to be $1.2147. By September 2024, the exchange rate is predicted to be $1.2193. By September 2025, $1.2241. And by September 2026, $1.2290. These were the figures as of 16/08/2022. You can get the latest ones here. 

These figures may be wrong, but the closeness of the figures to the current USD/GBP exchange rate indicates that currency experts are not expecting material devaluation of the pound relative to the dollar.

Update 02/09/2022: Some FOREX market participants take a different view to the market as a whole. In late August 2022, Capital Economics predicted the USD/GBP exchange rate of 1.05 by mid 2023. If this came true, UK firms could see sharp IT price rises from US-based tech providers seeking to maintain existing revenues in dollar terms.

Update 26/09/2022: Following the tax-cutting mini-budget on 23/09/2022, USD/GBP fell to $1.03, before recovering to $1.08. The Bank of England's decisions over interest rates and quantitative tightening will play a crucial role in determining what happens next to the USD/GBP exchange rate. That doesn't bode well for sterling or the affordability of IT goods priced in dollars.

UK Tech Price Rises Aren't Over

In both the US and the UK, rising energy costs and a tight labour market are making it more expensive for tech firms to operate, and this is leading to price rises.

For example, a 40% increase in electricity costs over the past three years has increased the cost of some hosting services and the cost of hosting servers in-house. Wholesale electricity price rises aren't over. For example, the cost of electricity to be delivered in October 2022 has more than doubled over the past two months.

Update 26/09/2022: The UK Government has announced six-month energy price caps for business, which will reduce wholesale prices for the period 01/10/2022 to 31/03/2023.

Tech salaries are also rising. This won't necessarily lead to rising prices, but will certainly lead to a temporary moratorium on price cuts.

Technology is Deflationary

Over the long term, technology has been - and will continue to be - a major source of deflation. Servers keep getting more computationally powerful, more power-efficient and more space-efficient. Fibre-optic networks are able to handle ever more traffic. These improved versions cost about the same as the kit they replaced. 

The shift of workloads from application-specific hardware to software running on generalist hardware allows tech firms to deliver existing services at higher margins, in theory at least. In practice, those gains are often handed to customers in the form of lower prices. Technology that was once the preserve of investment banks and bulge-bracket law firms gets priced so even SMEs and non-profits can afford to adopt it.

For example, Microsoft Teams, Zoom and Google Meet are enabling SMEs to use video conferencing, without any specialist hardware.

Technology Subsidies from Venture Capitalists and other Shareholders are Going To Be Cut - Temporarily

The current economic climate is causing loss-making tech firms to tighten their belts. Up to now, venture capitalists and other shareholders have been happy to fund the losses of fast-growing tech firms. 

That patience is evaporating, with noted venture capitalists such as Sequoia advising loss-making firms to cut their cash burn.

This means worse pricing in the short term - less attractive introductory deals and longer contracts if you want decent pricing. However, once growth returns, the aggressive pursuit of market share will be back, and with it, keener pricing. 

Technology is Essential To Cutting Business Costs Without Cutting Services

Even though UK tech prices have been rising, it's important not to lose sight of the bigger picture.

Inflation is putting organisations under significant pressure to cut costs while maintaining service levels. Technology is the key to making that possible. Even with price increases, technology's medium-term impact is deflationary.

New applications and process automation cut labour costs.

Online portals draw customers away from more expensive service channels.

Remote working technology can save a fortune in office costs.

US to Make Amends for Greenback's Impact

Although the strengthening greenback has increased technology costs for UK firms, America is taking steps that will help UK organisations in the longer term.

President Biden recently signed the CHIPS and Science Act, designed to increase America's share of chip fabrication, largely through generous subsidies. Some of those are likely to increase global fabrication capacity, cutting global chip prices slightly, benefiting the UK, among other nations. 

Over time, falls in chip prices will translate into lower hosting prices and lower laptop prices.

The Science part of the act will likely result in billions in extra funding for energy research. Eventually, this is likely to cut the cost of powering data centres in a carbon-neutral way. 

Like Danger Mouse, You Can Help Save The World

Technology is responsible for a substantial portion of the world's electricity consumption. By picking technology providers that are green, you can do your bit to save the planet.

By switching to hSo's cloud hosting service, you can ensure your server workloads are powered by green energy and hosted on a scalable, resilient platform in the UK.

You'll not only help save the world but potentially money too, as you just pay for the capacity you need right now and can upgrade later if your needs grow.