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A pretty quiet week, but the pound continues to sink, into territory that I consider very high risk for the UK economy.
Inflation Risks in the UK.
Since the 23rd June, when Britain voted to leave the EU in a referendum, the pound has been weak compared to the main trading currencies it deal with. The value of the pound has little impact on day to day living in the short term and much bigger impact in the long term. Its weakness continues. That has big impacts for inflation in the UK, as anything that is imported will be affected by higher costs, currently around 20%. This week Apple lifted the prices of all its computers in response. Tesco’s very publicly resisted raising prices on products such as Marmite, but this week Morrison’s raised the prices, including Marmite, of products provided by Unilever, a Dutch-based firm which reports results in Euro’s. Last month’s inflation figures showed them starting to rise, with CPI(*) reaching 1% and RPI 2%. The end of year figure is announced on January 17th 2017 and I’m anticipating inflation to have risen strongly by then, with RPI at 3% or above.
For most people wages aren’t rising at that rate. The poorest have their benefits fixed until 2020. Inflation is hitting food and fuel harder than other goods at this point, so if your spending is skewed towards essentials and away from luxuries and savings these changes will hit hard. That has a big impact on the economy and big impacts in the economy affect business growth in all sectors.
It’s a time to step back and consider each area of your business carefully. Determine your strategy if you are buying things in dollars or euros. If you export can you take advantage now to grow some additional business? If you aren’t exporting, could you?
(*) (CPI is the Consumer Price Index and RPI the Retail Prices Index. RPI includes mortgages, rent and council tax – CPI uses a geometric mean, RPI the arithmetic mean). I prefer RPI as it reflects a more realistic basket of goods and a more ‘natural’ calculation of the change, all in all a better feel for what inflation rate is for ordinary people.
Foolish moment of the Week:
For the second week on the trot, Theresa May wins this week’s Foolish Moment award. Twice.
Her website sought to remove references to her objection to the third runway at Heathrow, before announcements during the week. The internet never forgets. She also had a leaked tape of her speaking at Goldman Sachs before the referendum talking about the dangers of leaving, times move on, although this makes her look inconsistent at best. (Source: New Statesman)
Preparing for the Future You Don’t Yet Know
Stephen Harvard Davis and I are running a workshop on January 19th 2017 – More details are here…
If you would like to know more call me on 07880 794127