I went for a ten year fix, a couple of months ago. I wonder if it will turn out to be a great decision…
Deadly dull post alert:
No deal in the Brexit talks is potentially going to be very, very bad news for inflation. Effectively you can expect the £ to depreciate leading up to the event and be very volatile after the event. This will inevitably raise the cost of imports substantially (ignoring all other relevant costs of importing, like clearing customs). At the same time, moving to WTO rules may raise the cost of a wide range of our imports as the imposition of tariffs feeds through, again leading to inflation.
The traditional response from the BoE would be to jack up interest rates to support the £ and cut off inflation. You could see this as being very dangerous as this would tend to depress consumer demand and investment in the economy at a time when both are likely to be very weak.
The only saving grace in the normal course of events would be a rise in demand for exports as the £ depreciates, but this advantage will be eroded as we move from free-trade with Europe to a significantly more protectionist stance post-Brexit.
In other words, expect a real burst of imported cost-push inflation and at best a slow-down, or at worst a recession. Buckle up now.
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It’s already here, you are 12 months too late with that news.
In 2013 the exchange rate was the same as it is now (pre-thoughts of Brexit).
I’m not worried, nothing I can do about it.
You really need to read what I wrote properly Bob. That was not a backward looking statement. You cannot inflation target into a contraction without (i) creating excessive volatility and (ii) exacerbating the decline.
You need to work in industry and see what is happening rather than the theory.
The currency drop has been happening for yonks and we are still OK, as importers on the whole have not been able to pass on the price increases to consumers and business. The exception is mobile phones as far as I can see. The HP laptops (shite they are) I buy at work are 3% more expensive than 2 years ago, and that is with a 20% reduction in currency.
Also, Brexit has been factored into our current exchange rate, hence the drop with the Euro and £ from 1.32-ish to 1.14 ish.
Yeah shut up Olan, or people might start thinking you’re an expert and ignore you.
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Yeah, and here was me thinking that running a fund was a hobby. Well, that is me told.
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Feckin’ bankers !
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I agree. Sadly I know little or nothing about banking or I would be very,very retired by now.
Investing is something I know a bit about. Volatility, and the trading thereof, I know a lot about…
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What was the base rate in 1989 or thereabouts? Somewhere between10-15% ? Something like that?
Makes the increase seem small anyway >positive spin mode off<
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Teddy has a toy shop mode on:
If costs go up but prices don’t, that means that the distributor has less margin to do things like pay wages or corporation tax. Or are we in free lunch Brexit economics?
Or the manufacturer is taking the hit, as is happening in many industries. People seem to be taking the view of trying to keep market share in the UK.
So is making less margin to pay wages and corporation tax. Won’t go on for ever.
Yes, but they manufacture outside the UK and mostly outside the EU.
I should have known better and not got involved, but the technicalities are to found under ‘exchange rate pass through’. As pointed out by @MrKettle the failure to pass on exchange rate fluctuations is a short-term phenomenon, and usual occurs in durable items. Pass-through is almost instant on consumables unless your retailer prefers a reduced bottom-line and an increased exposure to risk.
My original post was about inflation FTW, and how the current burst is largely imported…
I am aware of this, but what I am saying is that this theory is not actually happening and hasn’t been happening for the last two years, something the theory said should be happening. The actual happenng is that big businesses are not accepting the rises (you may get a small increase but not much) and are simply waiting for somebody in that market to accept their price expectations.
What is happening with UK businesses is that capital spending is now very irratic, with boom and bust quarters.
You mean investment is volatile don’t you? You ain’t seen nothing yet, and wait until Joe Public gets the full scare to see similar impacts on Consumer expenditure.
Companies/people in my sector are trading profit margin in an attempt to keep market share (and wait for this to all blow over).
They are in our’s, but the end of that particular road is fast approaching. Come the January price increase it is all going to come home to roost. As most of it is new plant and kit it will not hit the consumer at once, but will have a drip effect over 3 or 4 years.