Weak Pound Likely To Cause British Businesses To Raise Prices

A recent survey shows that Britons will have to facing rising prices in the coming months as the economy comes to grips with the fallout of Brexit. The poll conducted by the British Chambers of Commerce (BCC) has revealed that thousands of businesses are planning on hiking prices within the next three months as a result of a weakening pound.

The pound has fallen by as much as 18 percent against the dollar and 11 percent against the euro since the referendum results came in. Manufacturers are witnessing escalating input costs due to increases in raw material prices. In the survey, the number of companies that have indicated that they will be increasing their prices went up to plus 52 percent from plus 31 percent recorded for the quarter ending September 2016.

This level is the highest ever recorded by the BBC since it started collecting data in 1997. The number of businesses in the service industry who are likely to increase prices was at plus 30 percent, the highest since early 2011.

In a statement Dr Adam Marshall, director general of the BCC, said

Both manufacturing and services firms say they are under pressure, particularly from the rising cost of inputs, which is squeezing margins and may weaken future investment. Overall, our findings suggest growth will continue in 2017, albeit at a more modest pace.

The fall in pound was expected to boost exports in the UK but the number of companies seeing improved export sales fell to plus 16 percent from the plus 17 percent seen in third quarter of 2016. Nevertheless the survey predicts moderate growth in 2017. Nearly plus 15 percent of businesses are expecting an increase in sales in 2017 while several others have said that their turnover will grow.

Inflation has been anticipated as an outcome of Brexit by several experts. The Bank of England has projected that inflation will reach 2.7 per cent in 2017 while the National Institute of Social and Economic Research, a think tank has said it will touch 4 percent. Consumer spending which has been on an upswing in recent times on the back of rising credit could get affected by price hikes.

Suren Thiru, head of economics at the BCC, has pointed out that there was minimal evidence to support the idea that the falling pound was helping businesses. He said that while growth in the current quarter would continue as forecasted, in the near-term the economy is likely to slow down due to inflation and uncertainty surrounding Brexit.

Chad Simmons

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