As Britain’s Economy Stumbles, One Sector Is Booming: Whisky

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LONDON — Britain’s economy has been buffeted by the effects of Brexit, the war in Ukraine and, most recently, the government’s dramatic reversal on a series of planned tax cuts that led to the resignation of Prime Minister Liz Truss. But for Scotland’s whisky producers, business is booming, and the British pound’s precipitous decline against major currencies is providing an extra boost, making whisky more affordable for buyers outside of Britain.

“The currency has had a major effect — there’s no question about that,” said John Stirling, the co-founder of Arbikie Distillery in Scotland.

The volume of whisky exports from Britain has grown over the past two years, including a 10.5 percent increase during the 12 months ending in July over the same period the year before, according to government data.

The surge in exports, driven by higher demand from the United States and the Asia-Pacific region, comes as 20 distilleries have opened in Scotland in the past six years, bringing the total number of distilleries there to 141.

As demand for Scotch rises, the pound is trading near historically weak levels. Last month, the pound briefly sank to $1.035, a record low against the dollar in response to Ms. Truss’s economic overhaul, which included £45 billion ($50 billion) in unfunded tax cuts, spooking investors. Her government has since scrapped almost all of the planned cuts, but the pound’s decline has been part of a larger downward trend against major currencies, including those used in the United States, France, Taiwan, India, Singapore and China, the top destinations for Scotch. In the year ending in July, 18 percent of whisky exports, by value, went to the United States, according to government data.

Britain is also facing systemic economic issues, such as weak productivity, low pay growth, a shortage of workers and unsteady business investment since the country voted in 2016 to leave the European Union. On Wednesday, the government reported that the country’s consumer prices had risen 10.1 percent in the year through September, driven in part by food prices that recorded their largest increase in more than 40 years.

With high inflation expected to weigh on consumer spending and business investment, the International Monetary Fund predicted the British economy would go from 3.6 percent growth this year to a 0.3 percent contraction next year.

But whisky companies like James Eadie have been able to weather the economic headwinds.

“Overall if you look at the last two to three years, we’ve just been going through an incredibly buoyant time,” Rupert Patrick, the chief executive of James Eadie, said. “We’ve all been slightly scratching our heads saying, I wonder why it is so good at the moment.”

One likely factor is that the ad campaigns from some of the beverage giants that in recent years have bought smaller distilleries have helped to broaden the appeal of whisky to younger consumers, Mr. Patrick said. For example, an ad released last week by the alcoholic beverage company Diageo for its whisky distiller Lagavulin featured the “Parks and Recreation” actor Nick Offerman, who also held an Instagram Live tasting with the distiller’s master blender.

Whereas in the past, Scotch connoisseurs might have looked down on those who mixed it with Coke, or even just ice and water, “I think we’ve thrown off a few of the old stereotypes about Scotch, which has definitely helped in some markets,” Mr. Patrick said.

About 90 percent of Scotch is exported, according to the Scotch Whisky Association, the trade body for the industry. The most valuable market is the United States, where nearly £1 billion ($1.1 billion) of whisky was exported in the past year after President Biden suspended Trump-era tariffs on Scotch whisky.

Leonard Russell, the managing director of Ian Macleod Distillers in Scotland, said that he expected the weakness of the pound to be good for whisky exports but that increased demand for premium Scotch whisky from Greater China had been the biggest driver of growth for his company.

While the weaker pound can benefit exporters, it also means that they pay more for imported components, like casks from the United States; one British pound buys 19 percent less in dollars than a year ago. But whisky producers are more insulated than other businesses from rising import costs because their ingredients, like barley, are mostly homegrown.

Other businesses, such as British automakers, rely heavily on imported components, which have become more expensive. For that reason, the pound’s declining value since the 1980s has not translated into sustained, strong performance for export-focused businesses, said Diana Coyle, a professor of public policy at the University of Cambridge.

“People who favor depreciation have always made arguments about exports, and it doesn’t seem to be borne out by history,” she said.

While whisky exporters have reported high demand so far this year, they have also had to contend with challenges facing other British businesses, like skyrocketing borrowing costs, which have cut into consumers’ disposable incomes and made it pricier for companies to take out loans.

William Wemyss, the founder and chief executive of Wemyss Malts, said some whisky producers were dependent on loans because whisky takes years or even decades to mature before it is sold. Because of that, whisky producers have been major beneficiaries of the low interest rates in recent years. “The fact that those are now on an upward trajectory will be more problematic for the industry,” he said.

Higher energy prices have also hit distillers, since the whisky-making process, which involves germinating and drying barley, is energy intensive. A survey by the Scotch Whisky Association in August found that nearly a third of distillers had seen energy costs double.

Still, Mr. Wemyss said he was counting on strong global demand for single-malt whisky to continue.

“I think Scotch will be quite resilient, but you know, the proof will be in the pudding in the next year or so,” Mr. Wemyss said.


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