Brexit is forcing up prices, will it make life more expensive?
BY Harvey Jones
1st Jan 2015 Managing your Money
It was fitting that Marmite should trigger a massive row over the impact of the EU referendum on shop prices. Brexit is already turning into the Marmite of British politics: you either love it or hate it. The vote to quit the EU is either the best thing since sliced bread or will leave a nasty aftertaste—you either love it or you hate it.
Cold comfort
Marmite became a symbol of all this after Anglo-Dutch manufacturer Unilever told Tesco it was hiking its price by 10% to cover the cost of falling sterling.
Unilever was also demanding blanket prices rises across another 200 everyday goods, including PG Tips, Comfort, Dove, Flora, Pot Noodle, Ben & Jerry's, Bertolli and Knorr.
Critics pointed out that Marmite is produced in the UK and claimed the company was using Brexit as a smokescreen.
Tesco won that battle after boss Dave Lewis refused to pay up and let these products vanish off the shelves, but the war is far from won.
Holidays cost
One thing nobody has an appetite for is higher prices in the shops, and given the collapse in sterling since the referendum, that is exactly what we are going to get.
The pound has fallen almost 20% against both the euro and dollar, sharply reducing British buying power overseas.
Holidaymakers will notice the impact as their pounds no longer travel so far, with foreign currency, hotels, restaurants, drinks and shopping all costing up to 20% more.
Read more: 7 Affordable holiday ideas
Imports rise
The bad news doesn't stop there. Prices will also rise in UK shops, because sterling's weakness means that imported goods will now cost more.
Most of our clothing is made overseas and paid for by retailers in dollars. Oil is also priced in dollars and petrol is already getting more expensive at the pumps.
Much of our food and nearly all of our wine is imported, again, making it more expensive.
The British Retail Consortium has warned that if the UK loses access to the single market duty on meat imports could hit 27%, with tariffs on clothing and footwear rising between 11% and 16%.
Savings trap
Economists say inflation could hit 3.5% next year, and with wages rising at around 2%, that will shrink our spending power.
This also spells further bad news for savers, as the value of their money will fall even faster in real terms.
Brexit has already punished savers after the Bank of England cut interest rates to 0.25% in August, in a bid to offset the anticipated slowdown.
The average easy access savings account now pays a meagre 0.43%, according to MoneyFacts. It could fall again if the Bank of England cuts rates even lower to 0.1%, as it has threatened.
Read more: 5 Reasons savings are still important
Nation divided
There are benefits to the falling pound. It makes British exports cheaper for foreign buyers, which should give industry a boost. Overseas profits are also worth more when converted back into sterling, which explains why multinational FTSE 100 companies have seen their share prices rebound.
Those who voted in favour of Brexit may feel any pain is worth it to "take back control" of our country, Remainers will be even more frustrated if shop prices run out of control as a result. Even Marmite doesn’t divide people quite so much.
EDITOR'S NOTE: Information accurate on date of publishing (16 October 2016)
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