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What are the Main Costs of Brexit?

By Malcolm Orchard on 11/10/2016 - 0 Comments

JCB's chairman, Lord Bamford, was a prominent supporter of the Brexit campaign. During the campaign he said: "The UK is the world's fifth largest trading nation. We therefore have little to fear from leaving the EU."

He also wrote to his 6,500 UK employees to explain why he favoured a vote to leave the European Union, saying he was "very confident that we can stand on our own two feet". Since this time we have warnings from British Retail Consortium over price rises and the significant devaluation of the pound. In the run up to Brexit, what are likely to be the big costs?

Failure to strike a good Brexit deal in 2019 will push up prices in the shops, the British Retail Consortium has warned. The trade body warned reverting to World Trade Organization (WTO) rules could see tariffs on clothes of up to 16% and on meat of up to 27%."Years of deflation" would mean retailers would have to pass these import costs on to consumers, it said. This follows a similar warning from the CBI last week. The BRC has stressed that overall prices would rise and shopkeepers would struggle to absorb those higher prices.

The fall in the value of the pound since the referendum, a trend that accelerated last week to leave the pound at its lowest against the dollar for 31 years and at five-year lows against the euro, already means any goods brought in from outside the UK will cost more.

As at 11th. Oct, the pound continued to come under pressure while the FTSE 100 share index headed towards a record high. The value of the pound has fallen sharply over the past few days on worries about how the UK's economy will be affected by Brexit.

Sterling was down 0.6% against the dollar at $1.2284 and slid 0.4% against the euro to €1.1051. The value of the dollar represents a 31 year low and against the Euro a 5 year low. The FTSE 100 was up 15.33 points at 7,112.83.

That put the UK's benchmark share index above its record closing high of 7,103.98, but below its record intra-day level of 7,122.74.

The fall in the pound has boosted the FTSE 100 as many of the companies in the index generate most of their revenues abroad. A weaker pound means overseas revenues are worth more when they are converted back into sterling. This may give a useful boost to trade and the economy over the next few months.

Many airports are now reporting rates of less than 1Euro for £1. This may lead to a welcome boost to UK tourism but will make the cost of holiday much more expensive.

These are certainly turbulent times and the impact is likely to be seen in terms of price rises for the British consumer. Cost of holidays will certainly be impacted as sterling continues to slide. One big hope is that interest rates are not required to boost the value of the pound. If this is the case, then everyone will really start to feel the pinch.

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