Anxiety is battering the pound – and everyone is feeling the pinch. But it is not just consumers that will suffer as ANGELA JAMESON explains
As the world waited for a glimpse of the first $1,000 iPhone, closer to home the problem of soaring prices for everyday goods, rather than for the hottest gadget, is occupying minds.
Prices rose by 2.9% in August, unexpectedly higher than analysts had feared.
Brexit is to blame, as most will realise now: the fall in the value of sterling since the 2016 referendum has pushed up the price of imported goods.
In August it was clothing and fuel that sparked the shock rise. Clothing and footwear prices climbed by 4.6% on an annual basis, that’s the highest figure since 1989. Ironically, for those that could still afford to venture into Europe or further afield, airfares rose more slowly than in last year’s summer holidays.
Core inflation, which strips out volatile factors like fuel and food, is now at a six-year high and economists are concerned that it could push higher in the final months of this year.
Meanwhile, the shock inflation figures sent the pound to a year-high against the dollar as the City bet that the Bank of England could be forced to move interest rates higher earlier than expected.
The sharp rise in prices causes a problem for the Bank of England’s rate-setters. Normally they would push up interest rates to put a lid on inflation but we do not live in normal times.
There are very real signs that the economy is slowing – companies are not investing, hiring or making strategic decisions because of the uncertainty caused by Brexit. In such an environment, it is pretty unlikely that interest rates will go up, even though influential voices on the Bank of England’s monetary policy committee are now calling for them to do so.
Rising prices means an ongoing cost of living squeeze for most people in the UK since earnings rose by only 2.1% at the last count. The Government is also coming under extreme pressure to lower the 1% cap on public sector pay increases. No one wants a re-run of the Winter of Discontent.
More people will feel hard up. Many of them will have voted for Brexit, in part creating the difficulties they now face.
The rising cost of imported goods is just one example of how our economy is tied to others. In recent years, the UK consumer has experienced rapid price deflation in many items from technology, to consumer goods and fashion, as we have shopped literally all over the world.
Globalisation is often associated with big companies who may not have our interests at heart: the McDonald’s, Coca-Colas and Exxon Mobils of this world.
But there are also global markets in healthcare, science, research, education, pharmaceuticals, biotech, telecoms and banking. British companies are often some of the leading players in these fields, but things are going to get harder for them.
This week a Swiss company called Sophia Genetics, which is using technology to get faster, better diagnosis of diseases including cancer, raised $30m (£22.6m) of funding from a British-based venture capital investor Balderton Capital. One of its biggest existing investors is Mike Lynch, one of the UK’s most successful tech entrepreneurs.
Sophia Genetics is a pioneer in the new field of genomics and applies artificial intelligence to massive sets of patient data, provided by 330 hospitals. It works closely with the NHS, hospitals in France, Italy, Canada, Australia and the US and is beginning to work in Latin America and Africa.
The sort of science and technology that a company like Sophia Genetics is bringing together should be available to the whole world, but Brexit will usher in borders, customs and tariffs that will make it that much harder for this company to bring its variant of data-drive medicine to the largest possible audience.
The Institute of Government said this week that UK businesses face higher costs of between 4bn euro (£3.6bn) and 9bn euro (£8.1bn) when customs and tariffs kick in after Brexit.
But the lost opportunity in being able to work easily and openly with businesses and institutions around the world in fields like genomic research could be incalculable.
Next time a company like Sophia Genetics is looking to raise funds, British investors may not get the chance to get in early.