Surprisingly, after a year of political and economic uncertainty, consumer spending in the UK is doing well. This is as a result of an increase in overseas tourists heading to the UK to purchase luxury goods made cheaper by the current weak pound.
The huge fall in sterling that has occurred since the EU referendum result has made the luxury products market in the UK a more attractive prospect to tourists from many different countries. These findings come from the latest Bank of England summary of business which found some good news and a lot of stability amid the uncertainty.
Although business prospects in the services sector have stayed at a tentative level, the turnover for these businesses has increased slightly from August. However, in the manufacturing sector, their output has increased as a reaction to growth and demand for our exports. Again, the growth here has come from the fall in sterling making our prices more competitive than other economies.
As exports increase, it comes at a price for some businesses struggling with lower profit margins especially when taking into account higher import costs for raw materials. As corporate profit margins decrease, the cost of goods has slowly started to rise as we have seen over recent weeks as brands have increased the cost of their products or cut down the size of products to maintain the same price.
One of the most obvious examples of this has been Tesco’s public argument with Unilever over the price of Marmite. As ingredients have become more expensive, the price of Marmite has been raised to compensate for any losses. Some supermarkets, such as Morrisons, accepted the rise but Tesco did not. As a result, Marmite and some other Unilever products were removed from Tesco shelves until the dispute was resolved.
These price rises and public arguments between brands are likely to become a more regular occurrence as the inflation forecast for next year has risen to 2.7% from its current 1% rate. Such increases in the price of consumer goods has seen economists warning of a ‘cost of living crisis’ for many in Britain.
Although, most of the economy is holding up towards the end of the year, the uncertainty that lies ahead for 2017 and beyond has seen businesses talk of scaling back on investment in some areas. There was an increase in investment this year for exporters and the services sector and they have reaped the rewards so far but with inflation set to rise steeply and the pound still weak, it could be a difficult 2017 for some.
Until then though, what we do know is that consumer spending is doing very well which puts many companies in a good position for the Christmas period and the possibility of strong sales figures.
References and further reading
Header Image from The Telegraph