Brexit effects take hold as UK consumers see price rises

British consumers are starting to bear the costs of Brexit, with companies raising prices of everything from cars to carpets to counter a plunge in the pound caused by the United Kingdom's vote to leave the European Union.

French carmaker PSA Group lifted prices of its Peugeot, Citroen and DS vehicles by an average of 2 per cent on August 1st, a spokeswoman said.

The increases make up for part of sterling’s 10 per cent drop against the euro and its 13 per cent fall against the dollar since the June 23rd referendum.

‘Reasoned measure’

“We took a reasoned measure given the currency fluctuations,” the spokeswoman said, confirming an earlier report that its Peugeot 308 hatchback had risen by 2.8 per cent, or £435 (€506).

Ian Fletcher, a London-based analyst at IHS Automotive, said it was "pretty much inevitable" that others would follow PSA.

“The UK is a very important market for European auto makers,” he said. “We’re going to see pressure passed on to consumers,” because companies are not prepared to cut their profit margins.

While some companies have stood firm on prices, worried about losing market share in competitive UK businesses such as groceries, others are moving quickly to pass along the effects of the weaker pound.

The increases underline forecasts for an uptick in inflation after the country flirted with deflation last year.

Alan Clarke, an economist at Scotiabank Europe, said it was "unusual" for companies to blame the Brexit referendum for cost increases they passed along so quickly. Typically there's a six- to nine-month lag between big moves in exchange rates and shifts in consumer prices, he said.

‘Opportunistic Companies’

I think you’ll have some opportunistic companies,” he said. “Whether people actually buy those products or they get discounted at sale time, we’ll have to wait and see.”

Some industries, like tourism, are more sensitive to exchange rates than others, such as electronics. While British holidaymakers hitting the beaches of Spain or Italy need to convert pounds to euro, pricing of consumer gadgets is more complicated. In the economic recovery that followed the 2009-2010 downturn in the UK, the pound rose along with prices of devices such as portable music players because of increased demand, Clarke said.

Since the referendum, PC maker Asustek Computer has said it planned to raise UK prices by 9 per cent in October, while Dell said the weak pound "will have a direct impact on the price we sell some of our products to our UK enterprise customers."

Smartphone provider OnePlus has lifted the price of its flagship phone while HTC marked up its Vive virtual-reality headset by £70 from August 1st.

Headlam Group, a UK distributor of floor coverings, has said it would raise prices, while US-based carpet provider Mohawk Industries said in an earnings call that it planned to adjust its European pricing "relative to where the pound has been."

Minimum wage

The fall in the pound is one of several factors that could lift consumers’ bills. Depending on the outcome of the UK’s negotiations to leave the EU, the country might reimpose tariffs on imported goods. UK employers also face increases in the minimum wage.

UK consumer prices climbed an annual 0.5 per cent in June. The Bank of England forecasts that inflation will accelerate through this year and next, hitting its 2 per cent target at the end of 2017. The last time it was at that level was in December 2013.

Competition among supermarkets has kept food bills in check in recent years. Grocer William Morrison, which competes with bigger chains such as Tesco and J Sainsbury as well as discounters such as Aldi and Lidl, last week said it was cutting prices of 1,045 items by an average of 18 per cent.

But the average cost of a weekly trip to the supermarket rose 1 per cent in July, according to price-comparison website mysupermarket.co.uk. – (Bloomberg)