Hello, I am working on an assignment related to the \"pricing repercussions of b

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Hello, I am working on an assignment related to the "pricing repercussions of brexit for british consumers". After reading the Wall Street Journal article below, please complete the two questions at the end.

Unilever Price Rises Herald Brexit Pain for British Consumers

The decline in sterling is pushing up prices and threatening the purchasing power of British households

LONDON—Consumer-products giant Unilever UL 0.37% PLC is raising its U.K. prices for everything from mayonnaise to shampoo after months of more-discreet increases amid a Brexit-triggered currency rout that is threatening Britons’ buying power.

Unilever is asking its top grocery retailers here for price increases of 10% on average, according to people familiar with the matter. That demand set the stage for a brief public standoff with TescoTSCDY -0.35% PLC, Britain’s biggest grocer. Tesco, which also is one of the world’s largest retailers, on Wednesday began removing Unilever brands from its website after refusing to accept the higher prices. Late Thursday, Unilever said “the supply situation with Tesco in the U.K. and Ireland has now been successfully resolved.” It gave no details.

Unilever confirmed on Thursday it has asked most of its sellers to pay higher prices for brands such as Hellmann’s mayonnaise, Dove soap and Ben & Jerry’s ice cream. It also makes Marmite, a popular spread. It cited rising commodity costs in dollars, which—coupled with the sharp decline in the pound—have raised the cost of imported ingredients. The Anglo-Dutch company, the world’s second-largest consumer goods maker after Procter & Gamble Co. , didn’t detail its pricing demands.

“The price increases have landed,” said Unilever finance chief Graeme Pitkethly on a call with analysts on Thursday.

It was unclear whether currency costs already have been passed along to consumers in Britain’s ultracompetitive grocery market—or whether they ever will be. U.K. national chains have engaged in costly price wars for years, fighting each other and a band of ultra-low-price discounters for market share. If other consumer-goods giants, such as P&G and Mondelez International Inc., don’t follow suit, shoppers would enjoy plenty of options for brands that keep budgets in check.

Still, Unilever has considerable pricing power here. It commands a 37% share of Britain’s ice cream market, for instance, and 21% of its table sauce market, according to market researcher Euromonitor International. Data from U.K. grocery price-tracking website MySupermarket shows major retailers have raised prices on some Unilever products in recent days but lowered them on others.

The price increase and Unilever’s spat with Tesco—splashed across the front pages of British newspapers on Thursday and trending online as “#Marmitegate”—put the economic stakes of Brexit for everyday Britons in high relief. With so many details of London’s planned split with the European Union still subject to years of negotiations, the largest impact felt so far by companies and consumers has been the pound’s steep drop. The pound is down roughly 15% against the dollar since the June 23 Brexit vote.

That has triggered a tourism boom as visitors enjoy cheaper hotel stays and shopping. British exporters also have gained as their goods are more competitive overseas. U.K.-based multinationals benefit from higher revenue as overseas sales are converted into sterling.

But for importers, the fall of the pound is painful. Changes in exchange rates affect input prices almost immediately. The cost of imported materials for businesses rose by 9.3% in August compared with a year earlier. Such changes take time to filter through to consumers. Consumer prices increased less than 1% in the period.

For many U.K. residents, sterling’s fall is already causing discomfort. Overseas vacations are more expensive, keeping more Britons at home. Retail prices of many imported goods, such as electronic devices, wine and cars, have been ticking higher for weeks.

Those increases so far have mostly involved discretionary purchases. With Unilever’s latest move, the prospect of higher prices for staples suddenly looms larger. Sanford C. Bernstein & Co. equity analyst Bruno Monteyne said the Unilever-Tesco dispute presaged “inevitable Brexit-induced price inflation.”

Last month, the Bank of England noted that retailers were “very cautious about any increases in prices, given that consumers remained highly price sensitive, and so the extent and timing of pass-through would largely depend on competitors’ actions, particularly in food retail.”

David Dines, a 56-year-old soccer coach voted in June to remain in the EU. Outside a Tesco store in south central London, tossing an avocado he just bought, he said the prospect of price fluctuations is “the consequence of Brexit, isn’t it? It’s inevitable.”

On Thursday, Unilever posted third-quarter sales growth on an underlying basis—which strips out the impact of acquisitions, disposals and exchange-rate changes—of 3.2%, down from a 5.7% gain in the same period a year earlier. The price increases the company has pushed through so far “are substantially less than we would need to cover the impact on our own profitability,” Mr. Pitkethly said.

He said Unilever has incurred €600 million ($662 million) in higher costs this year tied to currency devaluation, excluding the effect from the pound’s decline against other currencies. Unilever’s hedging arrangements typically protect it between four and six months out, however, and the company may start seeing the effect of higher sterling costs later this month.

In publicly rejecting the Unilever increases, Tesco’s initial stance set the tone for how price rises are passed along to retailers. Tesco Chief Executive Dave Lewis is a former Unilever executive.

Unilever also approached J Sainsbury PLC and other British supermarkets about raising prices by around 10% on average, according to a person familiar with those conversations. Sainsbury is still in talks with Unilever.

1. How does the rise in the value of the U.S. dollar relative to the U.K. pound affect prices in the United Kingdom?

2. How should retailers in the United Kingdom react to this situation?

(Please answer the two questions in a paragraph with 300-350 words total. In addition, please incorporate examples from the article when answering the two questions, thank you so much).

Low, Low Prices-For Now U.K. food prices have been deflating for two years, but the Brexit-driven plunge of the pound has them beginning to edge higher. UK Consumer Price Inflation 12% After Brexit_ referendunm 8 4 Aug. 2016 All items 06% Food -2.2% -4 2008 9 0 11 12 13 14 15 16 Source: U.K. Office of National Statistics THE WALL STREET JOURNAL.

Explanation / Answer

1.
The GBP/USD (British Pound/U.S. Greenback) is the abbreviation for the British pound and U.S. Greenback foreign money pair or move. The forex pair tells the reader what number of U.S. Greenbacks (the quote currency) are wanted to purchase one British pound (the base currency).

BREAKING DOWN 'GBP/USD (British Pound/U.S. Buck) '
the value of the GBP/USD pair is quoted as 1 British pound per X U.S. Bucks. For example, if the pair is buying and selling at 1.50 it means that it takes 1.5 U.S. Buck to purchase 1 British pound.
The GBP/USD is suffering from motives that affect the worth of the British pound and/or the U.S. Buck on the subject of every different and different currencies. Accordingly, the curiosity cost differential between the financial institution of England (BoE) and the Federal Reserve (Fed) will affect the worth of those currencies when compared to one another. When the Fed intervenes in open market pursuits to make the U.S. Buck greater, for illustration, the worth of the GBP/USD pass might decline, due to a strengthening of the U.S. Greenback when in comparison with the British pound.
Best Recession and Brexit
during the quality Recession, the value of the British pound fell sharply. In 2007, the GBP/USD traded to an all-time excessive above 2.10, earlier than falling under 1.40, shedding over a third of its worth as traders flocked to the U.S. Greenback - a so-known as riskless haven forex. In the five or so years proceeding the great Recession, the British pound recovered to trade around 1.6 in opposition to the U.S. Dollar.
The GBP/USD had an additional sharp decline in June 2016, when Britain voted to depart the ecu Union. The GBP/USD pair fell 10 percent in one buying and selling session and lost virtually 20 percentage within the month proceeding the Brexit vote. The vote to depart the european was once obvious as poor for the British economy as it would be pressured to renegotiate exchange offers and this uncertainty ended in investors pulling money out of the U.Okay. At a report %.
Correlations
The GBP/USD tends to have a bad correlation with the USD/CHF and a constructive correlation to the EUR/USD forex pairs. That is as a result of the confident correlation of the euro, Swiss franc, and the British pound.
Prior to the first-rate Recession, the GBP/USD was once extremely correlated with the Australian dollar and the brand new Zealand buck as buyers bought these high yielding currencies in what is known as a lift alternate process.

2.

Following the united kingdom's resolution to depart the european, British retailers and consumers surely face an exceptional difficulty, one full of uncertainty.
Looking back to the day of the effect itself (Friday 24 June 2016), in lots of ways the Brexit influence was once met with disbelief no longer least of all by using the retail industry. Martin Hayward, founder of Hayward technique and Futures, noted that the combined would of the research enterprise didn't count on or predict the majority view of the British populace, illustrating the extent of surprise.
James Knightley, Senior UK Economist at ING, famous that the overwhelming majority of surveys had recommended that British corporations had desired the united kingdom to stay a member of the european. Nevertheless, David McCorquodale, Head of Retail at KPMG, noted that many retail CEOs, particularly from the big national chains, had been careful to not take aspects for fear of alienating their manufacturer in this sort of divisive landscape. in any case retail, like democracy, is managed by means of the folks, he brought.
Surprise aside and with the effect of the european referendum now unquestionable, what does this momentous choice imply for retail?The KPMG /IPSOS Retail consider Tank (RTT) met in July (Tuesday 12 July) to talk about the short and medium-time period results of Brexit on the Retail sector. Given the magnitude and unheard of nature of Brexit, a quantity of issues came to light however common topics arose.
Within the quick-term, key subject matters discussed with the aid of the RTT included: a weaker pound, fragile consumer self belief and political uncertainty. In the meantime, in the extra medium-term, the prospect of better tariffs with alternate restrictions; a extra constrained labour give, and the way shops would advantage from constructive possibilities in gentle of Brexit, were on the minds of the RTT contributors.

On the spot and short-term have an effect on:
in the instantaneous aftermath of the Brexit vote, the RTT generally known that uncertainty notably political uncertainty - has ended in a dampening of consumer confidence, the driver of the retail sector's fortunes.
Mike Watkins, Head of Retailer and trade insight for Nielsen UK, confused that the psychology of the client used to be vital, and at the same time the RTT members agreed that this uncertainty wasn't more likely to be seen favourably by way of shoppers. For endured retail progress, purchasers either have to consider or be , however in the face of this uncertainty that is not going, Mike Watkins brought.
While future retail consumption could waiver, a number of individuals of the RTT prompt that in the brief-term pre-planned purchases, like vacation trips for instance, have been unlikely to vary as purchasers have already made the dedication.
For shops however, this political uncertainty was once of equal predicament, as Maureen Hinton at Verdict Retail added: no longer only is it a drag on customer confidence but additionally it prevents shops making concrete trade plans. Unless they understand how the united kingdom government intends to tackle the problems across the exit from the european, there may be little outlets can do apart from keep in mind every eventuality.
Dr Tim Denison, Director of Retail Intelligence at IPSOS Retail efficiency, prompt that the: sharp shock being felt following the Brexit determination [was] political rather than monetary; [with] the fundamentals of the latter stay[ing] stable. however, Nick Bubb, Retail consultant, noted that: the percentage costs of common shops slumped within the instant aftermath of the shock Brexit vote, as town moved speedily and brutally to [factor in] a future UK recession and sustained sterling weak spot.
in keeping with Jonathan De Mello, Head of Retail Consultancy at Harper Dennis Hobbs, retail real property experienced a an identical destiny. He highlighted that the somewhat illiquid nature of industrial actual estate resulted in such cash coming underneath colossal pressure to be offered (both excessive avenue and mall), at a level greatly below their contemporary valuations. Concerns over whether this pattern would extend to residential property was once also flagged by using different contributors.
There was normal consensus among the many RTT that some specific retail industries had been more likely to be more littered with the vote to leave than others within the brief-time period. Nick Bubb flagged that the proportion costs of tremendous ticket related firms, these regarding the housing market (like furniture shops), as good as motor shops, had been certainly difficult hit put up Brexit. On the foundation of ancient precedents that is where purchasers will rein in their spending first, in keeping with heightened uncertainty and worsening outlook for jobs and condo price, he mentioned.
Martin Newman, CEO at Practicology, bolstered this theme noting that trend was once already on sale prior to Brexit, however the move towards promotional recreation now appears to have spread to lots of the high avenue. fashion shops are most at chance since that they buy most of their goods overseas and pay in greenbacks, that means they are going to be greatly impacted via accelerated import charges as a result of the swiftly failing price of the pound, he brought.
Whilst specified shops could have experienced the instant have an impact on of Brexit greater than others, it used to be largely recommended that within the quick-time period there are all forms of causes why shoppers would quite simply keep on spending. Nevertheless, Dr Tim Denison flagged the necessity for timely promotions to encourage shoppers to ride out the uncertainty.

Medium-time period impact:
As in brief eluded to, much less favourable exchange rates for British outlets had been a consideration for the RTT. James Sawley, Head of Retail & leisure at HSBC noted that: normal retailers have a enormous requirement for bucks either immediately or indirectly via wholesalers and distributers extra down the supply chain.
while the retail enterprise may not bear in mind this an instant worry, as most retailers hedge their foreign money exposure (customarily between 9 to 18 months), the price of items purchased abroad will effectively come to be extra expensive as hedging unwinds. (although that is of course centered on the belief sterling is still devalued.)  
consequently, the RTT agreed that some of the burden created by way of much less favourable exchange rates may finally need to be shared with patrons through accelerated prices. Nevertheless, the debate then strikes as to if that is feasible in a price conscious, aggressive environment, or whether or not outlets could must absorb the loss into margins. For smaller shops, who are not going to have hedged against one of these scenario, this burden might be peculiarly hard to bare.
Even as hedging for less beneficial alternate rates may just assist in delaying cost rises 9 18 months, Maureen Hinton steered that: we are likely to see some rises in food [prices] earlier than then, because the fee of ingredients increases for meals manufacture. However, cost competition among foremost supermarkets will dampen [such price rises].
Following on from the latter point, Nick Bubb advised that: this is not such a unhealthy scenario for the beleaguered food retail enterprise, which is presently bedevilled by way of meals fee deflation, however has traditionally loved intervals of meals inflation. Nevertheless, the drawback is that the rise of the discounters and the excess superstore capability in the market, as online grocery looking and convenience retailer browsing attain ever more traction, is inflicting deep-seated structural alternate in the enterprise.
With respect to margins, a few participants of the RTT highlighted that the mixture of better import expenditures because of the decline within the worth of the sterling, coupled with the implementation of the national living Wage, would outcomes in elevated rate stress on outlets. Jonathan De Mello noted that this could influence in home outlets halting or slowing enlargement inside the united kingdom, however different contributors of the RTT instructed that strain on margins might provide a catalyst for accelerated efficiencies inside the retail sector.

Looking ahead:
As noted by using many participants of the RTT, what we're witnessing in the immediate aftermath of the vote comes ahead of the united kingdom having even brought on Article 50. Details of our exit will handiest turn out to be clearer following negotiations and as one RTT member instructed, it's but to be decided whether the united kingdom can achieve an amicable divorce from the ecu.
With this in intellect, the timescales in the case of Brexit had been regarded to be as uncertain as the final result of negotiations themselves, however the medium-term would be viewed to denote the interval between the end of this year and the point at which negotiations have accomplished, whilst the lengthy-time period refers back to the period beyond.
A key long-run consideration identified through the RTT used to be the retail sector's reliance on non-UK employees. As there will likely be two yr consultation following the activation of Article 50, nothing is but set in stone. Nevertheless, the RTT agreed that development in the retail sector was now not stylish on inexpensive labour, and there used to be preferred agreement that it was not likely migration would be stopped wholly, however alternatively restrained if some thing. However, it was once famous that retail had fished within the wider European market for authorities in data, analytics and digital, and will have to restrictions be utilized, the ability pool would be smaller for these specialisms.  
Trade offers are naturally a further key consideration, although David McCorquodale highlighted that he find it difficult to think that the united kingdom would with ease pull up the drawbridge to trade or that our farmers [would] no longer be supported to produce our meals. He commented: consumers will nonetheless wish to save and outlets will nonetheless excel in assembly demand. Already, low progress, extended bills, changing applied sciences, productivity and efficiency have all been driving and influencing retail procedure, and this is prone to accelerate over the following few years.
however, Maureen Hinton noted: at the same time the uk can obtain from freer access to world markets, except these deals were centered, UK retail is about for a interval of volatility.
despite this, the RTT participants veered far from focusing completely on a poor outlook, suggesting that Brexit might open up optimistic possibilities for retailers. Mike Watkins proposed that this used to be a time for shops to adapt or die, noting that browsing behaviour has already changed. James Sawley highlighted that: with rate pressures mounting in areas corresponding to staffing, transport and power bills, businesses have difficult selections to make which effect each patrons and shareholders. [However,] retailers with healthful stability sheets and healthful margins can find the money for to play the wait and spot game, preserving prices the identical to be able to protect or achieve market share.
In addition, Martin Hayward brought up that the vote to leave might broaden the importance of provenance and the opportunity, and legal permission, to promote in the neighborhood sourced items over imports, adding extra impact to an already essential development in food and common retailing.
Martin Newman delivered that: there is abilities for shops to peer a spike prominent online from worldwide purchasers who search to take capabilities of the susceptible pound. UK luxurious was identified as a key sector prone to benefit from this, and the RTT famous that the British brand additionally exports well.
Nevertheless, a view shared by means of the RTT contributors was that British patrons will continue to shop and that there will be naturally be profitable and shedding outlets because the Brexit panorama starts offevolved to take form. This method will take time, but as Martin Hayward confused, details of the united kingdom exit: ¦might be sluggish to emerge and customarily much less dramatic than we have been led to think within the heat of task fear.

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