The Scottish Mail on Sunday

UK braced for a pound­ing as shop­pers face squeeze

In­comes fall­ing as ris­ing prices out­strip pay Im­port costs soar with ster­ling slump wors­en­ing In­ter­est rates tipped to stay at record lows

- By Alex Hawkes, Neil Craven and Sarah Bridge

HOUSE­HOLDS are fac­ing a fresh squeeze on real in­come, as econ­o­mists pre­dict new falls in the pound fol­low­ing the Gen­eral Elec­tion re­sult. Fig­ures out this week are set to show that Bri­tons con­tin­ued to see wages out­stripped by in­fla­tion in May, with the Con­sumer Prices In­dex ris­ing 2.7 per cent and av­er­age weekly earn­ings 2.4 per cent.

The fall in ster­ling fol­low­ing the Brexit vote has driven up im­port costs, stok­ing in­fla­tion. Con­sul­tancy Fathom Macroe­co­nomics said it ex­pected the pound to drop fur­ther, hav­ing fallen more than 2 cents against the dol­lar fol­low­ing the shock Elec­tion re­sult.

‘In our view, with mar­kets un­duly op­ti­mistic about the prospect of a Tory-led coali­tion, ster­ling is vul­ner­a­ble to a fur­ther sell-off,’ it said in a note to clients. Un­cer­tainty over the eco­nomic out­look means the Bank of Eng­land is un­likely to raise in­ter­est rates when it meets this week.

Lead­ing busi­ness fig­ures grap­pling with the fall­out of the Elec­tion re­sult told The Mail on Sun­day that it could de­ter in­vest­ment and change Brexit out­comes.

Sir Martin Sor­rell, boss of the world’s big­gest ad­ver­tis­ing group, WPP, said the re­sult was bad for busi­ness and the wider econ­omy. He added: ‘It cre­ates un­cer­tainty, lead­ing to hes­i­ta­tion by those look­ing to in­vest in the UK. I can­not see many peo­ple want­ing to take a risk when un­cer­tainty has risen.’

But he was up­beat on Brexit ne­go­ti­a­tions, say­ing: ‘Does this mean we will have a softer Brexit? I think the odds are we will. I would like to see a soft Brexit quickly, but all this con­fu­sion means any agree­ment could take even longer. And re­mem­ber, we have to put it all to the other 27 coun­tries for ap­proval, so we re­ally don’t have much time.’

UFI IBRAHIM, chief ex­ec­u­tive of the Bri­tish Hospi­tal­ity As­so­ci­a­tion, said while the pound’s fall was ‘good for busi­ness’ boost­ing in­bound tourism, ‘it can also be very dam­ag­ing on costs, so peo­ple will be con­cerned’.

She too saw a sil­ver lin­ing in a softer Brexit. In a poll of BHA mem­bers last year, three-quar­ters favoured stay­ing in the Euro­pean Union. Now the BHA is warn­ing of a huge skills short­age. Ibrahim said: ‘Peo­ple will take com­fort in the fact it’s likely to be a soft Brexit, es­pe­cially on im­mi­gra­tion, but un­cer­tainty can be dam­ag­ing.’

Jas­mine Whit­bread, head of busi­ness body Lon­don First, agreed say­ing: ‘You can’t have a global cap­i­tal with­out global tal­ent. Tal­ent re­mains top of our con­cerns. With the clock tick­ing on Brexit, se­cur­ing the rights of EU cit­i­zens al­ready work­ing here would be a quick win. What we need is for Govern­ment to start en­gag­ing with busi­ness.’

Ger­ard Lyons, eco­nomic ad­viser to Boris John­son when he was Mayor of Lon­don and now chief eco­nomic strate­gist at Netwealth In­vest­ments, said that while ‘there could be some un­cer­tainty im­pact’ he ex­pects strong global growth to sup­port the UK econ­omy.

Lyons, one of the eight ‘econ­o­mists for Brexit’, said the Tories now need to build sup­port for their Brexit po­si­tion. He said: ‘Given it needs to be ap­proved by Par­lia­ment, it has to be de­bated more.’

For many busi­ness peo­ple that means explaining what the Govern­ment wants to achieve from Brexit. Mike Hawes, chief ex­ec­u­tive of the So­ci­ety of Mo­tor Man­u­fac­tur­ers and Traders, said: ‘Now more than ever we need strong en­gage­ment by Govern­ment with the in­dus­try, both on the do­mes­tic agenda and in Euro­pean ne­go­ti­a­tions, to se­cure fu­ture growth and in­vest­ment in our sec­tor.’

Al­lie Reni­son, head of trade pol­icy at the In­sti­tute of Di­rec­tors, said the hung Par­lia­ment would make it harder for Theresa May to threaten the EU with a ‘no deal’ sce­nario. She said: ‘Com­ing back to Par­lia­ment and say­ing you’ve walked away is a trick­ier op­tion be­cause more peo­ple in the party will not be happy about it.’

Se­nior Tories ap­peared to have con­ceded last week they might seek a ‘softer’ Brexit, po­ten­tially stay­ing in the cus­toms union and sin­gle mar­ket. Brexit Sec­re­tary David Davis said as the votes were be­ing counted that leav­ing the cus­toms union and sin­gle mar­ket were in the Tory man­i­festo, adding: ‘We’ll see by to­mor­row if the Bri­tish peo­ple have ac­cepted that or not.’

Scot­tish Con­ser­va­tive leader Ruth David­son mean­while talked about pur­su­ing an ‘open’ Brexit.

Walk­ing away from talks with­out a deal would see the UK trade with the EU on World Trade Or­gan­i­sa­tion tar­iffs. But there would be big ques­tions over reg­u­la­tions on air travel and nu­clear power tech­nol­ogy – with some econ­o­mists sug­gest­ing the con­se­quences could be so cat­a­clysmic for trade that the idea was a non-starter.

Firms are still likely to press on with plans to move op­er­a­tions to the EU, even if they do hope a deal al­low­ing them to stay in the UK will be struck. The IoD’s Reni­son said: ‘I think com­pa­nies may wait a bit longer to see whether they have to pull the trig­ger or not.’

She thought there might now be ‘more flex­i­bil­ity around the tran­si­tional pe­riod due to the Elec­tion.’

Banks in par­tic­u­lar are seek­ing a smooth tran­si­tion be­tween leav­ing in March 2019 and a trade deal tak­ing ef­fect. Some said be­cause both Labour and Tories had ex­plic­itly en­dorsed Brexit in man­i­festos, a no-deal sce­nario was still likely.

Pro­fes­sor Pa­trick Min­ford, another of the ‘econ­o­mists for Brexit’, said: ‘If the EU doesn’t ne­go­ti­ate in a sin­cere way and tries to bully us there will be a com­ing to­gether of the clans in the UK to say no deal is bet­ter than a bad deal.’

But Lee Hard­man, cur­rency an­a­lyst at Mit­subishi UFG, said: ‘There are now hopes of a softer Brexit. But mar­kets should be cau­tious of bank­ing on this.’

 ??  ?? TOUGH CHOICES: In­fla­tion is set to put pres­sure on house­holds
TOUGH CHOICES: In­fla­tion is set to put pres­sure on house­holds
 ??  ?? What we need from Govern­ment is to start en­gag­ing with busi­ness JAS­MINE WHIT­BREAD (left) Boss of busi­ness body Lon­don First
What we need from Govern­ment is to start en­gag­ing with busi­ness JAS­MINE WHIT­BREAD (left) Boss of busi­ness body Lon­don First
 ??  ?? I can­not see that in­vestors will want to take a risk on the UK when un­cer­tainty has in­creased Sir MARTIN SOR­RELL (right) Boss of ad­ver­tis­ing gi­ant WPP
I can­not see that in­vestors will want to take a risk on the UK when un­cer­tainty has in­creased Sir MARTIN SOR­RELL (right) Boss of ad­ver­tis­ing gi­ant WPP
 ??  ?? Peo­ple will take com­fort from the fact it is likely to be a soft Brexit UFI IBRAHIM (right) Chief Ex­ec­u­tive, Bri­tish Hospi­tal­ity As­so­ci­a­tion
Peo­ple will take com­fort from the fact it is likely to be a soft Brexit UFI IBRAHIM (right) Chief Ex­ec­u­tive, Bri­tish Hospi­tal­ity As­so­ci­a­tion

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