From computers and cars to carpets and food, Britain’s decision to leave the EU is beginning to hit consumers in the pocket, having already spread uncertainty through the property market.
The consequences of the shock vote have so far been mainly theoretical, but recent data suggest that the country’s tumbling currency is about to reach the High Street.
Shockwaves from Britain’s vote to leave the European Union are reverberating through the economy with surveys published on Thursday (28 July) showing a sharp dive in consumer confidence and a slowdown in the construction sector.
The pound has lost 10 to 15% of its value against the euro and the dollar since the 23 June referendum, raising the price of goods primarily supplied by foreign companies such as automobiles, computers, clothing and some foods.
Carmaker Peugeot told AFP that it had raised prices by an average of two percent since 1 August for models of its three flagship brands: Peugeot, Citroen and DS.
Similarly, Dell computer group said it now had to factor the cost of components, denominated in dollars, into the price of its products in Britain.
British group Headlam explained that the pound’s plunge had also increased the cost of its domestic floor coverings, imported mainly from Belgium and the Netherlands, by around six percent.
All eyes are now turning to food and property, which have been relatively unscathed, but which many fear could see similar price fluctuations.
Fierce competition among supermarkets desperate to maintain market share normally provides a bulwark against sharp inflation in food prices, but Brexit could rewrite the rules, said Fraser McKevitt, an analyst at Kantar group’s London office.
“We wouldn’t expect to see anything come through immediately, but if sterling does remain weak, we are likely to see impact on some prices,” he told AFP.
“Around 40% of food in the UK is imported.”
Diluted purchasing power
Price comparison website mysupermarket.com has already reported an increase of one percent in the price of an average basket of supermarket goods in July, blaming “fears of Brexit” for the second consecutive month of price hikes.
There are also fears over the UK housing market, but deflation is more of a concern than price rises in this key sector.
Price cuts of nearly 20%, and a drop in the value of the pound have created “Brexit discount” bargains on some of the most expensive homes in central London — if you have millions of pounds to spare.
Figures released on 15 August showed that residential rents for new lets in London had fallen for the first time in six years, according to the first study published on the issue since Britain voted to leave the European Union.
While good news for tenants, it will leave landlords worse off. In addition, homeowners have seen the value of their property rise on average by just 2.1% in the year up to August, a slowdown from the breakneck growth of recent years, according to property website Rightmove.
Despite Brexit’s tremors being felt in the economy, official figures do not yet reveal wild price fluctuations, reporting only a slight rise in inflation of 0.6% in July. But experts expect stronger inflation growth over the next few months, boosted by the increased costs of imported goods and more volatile goods such as alcoholic drinks.
The Bank of England has also deployed monetary weapons in an attempt to stop the economy sliding into recession, which are expected to increase the money supply and as a result boost inflation and further weaken the pound.
The Bank of England on Thursday slashed interest rates to a record low 0.25 percent and announced a vast stimulus package to combat economic fallout from Britain’s looming EU exit.
Britons hoping for a pay rise to compensate for increased costs are likely to be disappointed, according to analysts.
“It looks probable that consumer purchasing power will be significantly diluted over the coming months as inflation trends higher and earnings growth is limited,” warned Howard Archer from IHS Global Insight.
Activity in Britain’s crucial services sector sank in July following the vote to leave the EU, a survey by the research Markit group showed today (3 August), making a recession more likely.
“Companies may well look to clamp down on workers’ pay as they strive to save costs in a more difficult environment.”
Workers lucky enough to see a rise in their salary thanks to a fall in low-skilled immigration are unlikely to enjoy a marked increase in living standards due to the general slowdown of the post-Brexit economy, a report published by the Resolution Foundation said yesterday (16 August).