5 June 2017
We are already feeling the cost of Brexit.
Since June 2016, the value of the Pound has fallen against the Euro and the Dollar. Before Brexit, £1 bought $1.44. Today it buys $1.22. Meanwhile against the Euro, in June 2016 £1 bought €1.3. Today it buys €1.1.
That’s a 15% drop against both currencies.
That means that when British buyers try to buy goods from overseas, they now have to spend 15% more to get the same quantity that they were buying in June. And we import a lot of vital goods.
Around 40% of all food in the UK is imported, and over 71% of those imports are from the EU. We also export 61% of our agricultural products to the EU, a relationship now threatened by the possibility of tariffs. Already British farmers are having to raise their prices, making them less competitive internationally.
In the weeks following the referendum, as the pound steadily weakened, the cost of basic commodities generally increased. Coffee and butter both rose in import cost by more than 8%, pork and cooking oil by more than 5%, while the price of cotton rose 12%.
In Tescos, flour is now 6.1% more expensive; in Sainburys a bag of frozen vegetables is 5.5% more expensive, in Asda chilled juice is up 6.6% and in Morrisons ice cream rose 8.2%. Even where prices aren’t being raised, the size of what you can buy is decreasing, while it’s estimated that the weak pound is going to raise the cost of importing wine by £400 million a year.
In response to the rising cost of goods, inflation has risen above the government’s target of 2%. In realistic terms, this means that the bicycle you bought in 2016 for £250 will in 2017 cost you £255, in 2018 will cost you £261, in 2019 cost £267 etc..
While this doesn’t feel like a big deal, remember that inflation affects everything, including food, energy bills and basic commodities. All this while wages stagnate. The Office for Budget Responsibility predicts average wages to be 2.4% lower by 2021.
If therefore you had £250 to buy a bicycle in 2016, by 2021 that bike will now cost you £285, assuming inflation hasn’t risen further… but you’ll only have £222 to spend on it.
This affects the young disproportionally. In the years after the 2008 financial crisis, the median wage for young people fell 7%. This is the generation most likely to be affected by Brexit, moving forward saddled with extortionate university debt, falling wages and the rising cost of goods.
Saving money is also becoming harder. The Bank of England’s rate is 0.25%, meaning if you were to invest money in a saving’s account, the interest it would accrue would be less than the loss of value to your money owing to inflation. Meanwhile, credit card companies charge anywhere between 11%-37% interest on debt owed.
Inflation from the falling pound is hitting students hard too. Students graduating in 2017 could have as much as £44,000 of debt, and the student loan rate is tied to inflation, resulting in its increasing to 6.1% in April 2017. On £44,000, that’s an extra £2684 of debt to be repaid in the first year alone.
We are already feeling the cost of Brexit; Theresa May’s policies are set to only make it worse.
- Catherine Webb