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How Brexit could impact your weekly shop

Taking the crisp white envelope from his battered leather briefcase, Sir Tim Barrow handed the letter formally triggering Article 50 to EU president Donald Tusk this week, starting the two-year countdown on Brexit negotiations.

I knew what was coming, but was still glued to my laptop on Wednesday to watch the historic event unfold – it turned out Barrow’s delivery was surprisingly brief. One day my kids will want to know what it was like living as part of the EU, I’m sure.

Negotiating Brexit

Negotiating Britain’s divorce from the EU will be no mean feat for prime minister Theresa May. It’s not going to be easy and, at points, it’s likely to be painful. I’ve made the argument for portfolio diversification during such uncertain times before.

May will need to negotiate how much Britain needs to pay to leave the union, what happens to EU citizens in the UK and how the border in Ireland will work. Another priority will be negotiating trade deals.

Trade will be high on May’s list as she wants to bring Britain out of the single market. This currently allows us to trade with other EU countries without having to pay any extra tariffs. Businesses have passed these savings onto us, the customer.

In 2015, 44% of the UK’s goods and services were exported to the EU, with over half of our imports coming from the union, data from the Office National Statistics shows. This was worth £223.3 billion and £291.1 billion respectively.

Whilst the amount I pay for my weekly shop has fluctuated, the amount I pay for clothes, for instance, hasn’t really changed since 2009. The UK’s clothing and footwear pricing index sat comfortably above 200 in January 1996, but had halved to 100 by May 2009 when Britain was struggling to survive the post-financial crisis recession. It hasn’t really moved since.

Contributing to this pricing sweet spot has been China’s rising global dominance in the manufacturing space. In 1990 China produced just 3% of the world’s manufacturing output by value, numbers in the Economist show. This rocketed to a quarter by 2015, as the region drew in global businesses with the promise of cheap labour.

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Wage growth in the UK has stayed ahead of inflation¹ over the last couple of years, which has left me with a little bit more at the end of the month. After earmarking some cash for my stocks and shares ISA and my two children, I’ve been able to treat myself now and again.  

Although we’ve been in this pricing sweet spot, clothing saw the biggest rise in prices for six years in late 2016. After a long, aggressive sales campaign from the retailers struggling to adapt to online competition and dodgy weather, a curb in discounting was the main driver.

With the pound weaker, it makes sense that the price of imported clothes will increase. The impact’s been limited so far, but it’s likely to start feeding into prices at the till.

Free trade

Although May wants to leave the single market and customs union, she still believes we can negotiate a free-trade agreement with countries in – and out – of the union. The EU has immediately put this idea on ice, however, until divorce negotiations have made more progress.

Businesses are worried, of course, but not just because the removal of tariffs could increase costs – although some argue deals with non-EU countries will keep prices low. But Brexit has already caused sterling to fall sharply, making imports more expensive. The financial part of my brain is worried this will increase prices, despite other arguments to the contrary.

A recent report in The Guardian suggests food prices could increase by 8% the end of negotiations. That’s little surprise after reading that the UK imported nearly £48 billion of food and agriculture products last year, with over 70% coming from the EU.

As we rely on policy makers to navigate us through the next two years, there’s a lot of uncertainty ahead of us. We might have to pay more for the same items, but I’m still going to prioritise my family’s investments. I need to be prepared for a rainy day – it’s the UK, after all.  

  1. Office for National Statistics 

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