Whilst there may be a lot of general uncertainty around Brexit, particularly in the medium term there are some effects that can be forecast with considerable accuracy right now.
By far away the biggest short term effects of Brexit will be those caused by currency changes. Since June 2016 we have seen the pound fall significantly against both the euro and the dollar. The Pound is now worth about 20% less against the dollar and about 10% less against the Euro. This means two things: it’s cheaper for those who want to buy things from the UK and it’s more expensive for us to buy things from aboard.
There’s a big problem here; because much UK manufacturing has shifted aboard over the last half century, we are buying in a lot of imports. And a lot of these imports come from China. Not only have we slipped against the Dollar and the Euro, we have also slipped against the Chinese Yuan. Prior to the Brexit vote the Pound bought about 9.4 Yuan, now it’s about 8.5 – another drop of around 10%. All this means we can say one thing for certain, unless manufacturers absorb price increases, the cost to consumers of imported products will rise by about 10%. Our biggest import areas are machines and machinery, vehicles, electronics, oil, pharmaceuticals, metals and plastics.
Given that many marketers are in the business of selling food and groceries, it’s worth mentioning that the UK imports more than 50% of its food and feed – i.e. animal feed. According to the Food Research Collaboration, the UK has a £21bn food trade gap. We can expect many of these food important to increase in price.
Given that most households have a relatively fixed budget we could see fewer items being purchased in order to remain within the weekly budget – any non-essential ‘treats’ could be cut back. That means we may spend about the same, but buy less. So for those marketers who are selling something in the UK that was manufactured outside the UK, they can expect things to be more challenging.
But there is a positive flip side to this coin. Just as things from abroad become more expensive, so things that originate here and are sold abroad become less expensive. Typically, and perhaps most easily identifiable are holidays. Those tourists who come to Britain to spend their leisure time will see the cost of their holidays fall. Good news for tourism businesses like hotels and guest houses, venues, attractions, tour companies operating in the UK and tourist destinations in the UK. In 2013 Deloitte estimated UK tourism to be worth around £126.9bn (9.0%) of UK GDP. Expect to see tourism numbers improve over the next few months and years.
Remaining on the subject of tourism, if our holidays aboard become more expensive we could see increasing numbers of “staycations” holidays taken in the UK rather than abroad. Clearly this is good news for all UK tourist destinations, hotel owners and small holiday business owners.