Brexit and price rises

13 October 2016

“Tesco pulls Marmite from online store amid Brexit price row with Unilever”

Telegraph, 13 October 2016

“Brexit decision hits migrant workers’ wages sent home”

Financial Times, 17 August 2016

“Brexit has pushed up cost of European holidays by £300, Liberal Democrats say”

ITV News, 14 August 2016

“Ministry of Defence 'facing extra £700m costs post Brexit'”

BBC News, 10 August 2016

Love it or hate it, Tesco seems to have run out of marmite.

There’s reportedly been a price dispute between Tesco and one of its suppliers, Unilever. Reports suggest that Unilever has increased the prices of many of its products in response to a fall in the pound since the EU referendum.

£1 bought around $1.48 in global markets on 23 June, the date of the referendum. Today it’s about $1.22. That’s a drop of around 18% since the day of the vote.

The fall is down to the expectations of investors, who believe that the UK’s economy won’t grow as quickly in future. Their reaction has been to convert their money into other currencies so that it can be invested elsewhere—and when there’s less demand for a currency, its value drops.

This makes imports more expensive. It makes money sent abroad less valuable once exchanged into the local currency. And it raises the cost of a holiday in another country.

Exchange rate movements, rather than any underlying rise in the prices of foreign goods and service, explain lots of post-referendum price rises.

As we wrote in collaboration with the Telegraph before the referendum, this was both expected and reversible. Sterling could recover, undoing the recent effect on prices, although economists generally think it won’t.

It’s not bad news for everyone. British goods and services will be cheaper for foreign buyers, which helps companies sell more abroad.

But the Director of the Institute for Fiscal Studies describes as “nonsense” the idea that a weaker pound will, overall, make British people better off.

Update 13 October 2016

We updated this piece to include the story about Tesco and Unilever.

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