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 350 words total).
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
The British consumer has a difficulty.
Fourteen and a half of months after the vote to depart the ecu Union, and the hundreds of thousands of UK patrons are feeling the monetary influences of the determination.
For a very long time the powerhouse of the uk's financial system, the urge for food of the British patron is now beginning to stutter as the twin forces of rising inflation and stagnant wage development squeeze the economy, forcing up the expenditures of dwelling faster than the typical pay packet.
Inflation which pre-referendum had ticked along at less than half of 1% has jumped due to the pound's depreciation against both the greenback and the euro after the vote. On the final reading, inflation was once 2.6%, but many count on it to cross above 3% before the tip of the 12 months.
By contrast, wage development was once simply 2.1% when measured as a part of the place of business for national facts' present day job market figures launched in August.
Slowing purchaser spending and total loved ones consumption are greatly mentioned to have been behind the slowdown in the wider British economic system this 12 months, which has pushed the uk to the bottom of the pile in phrases of GDP development in fundamental economies.
"the important thing to our view of weakening UK development this 12 months was once slowing household consumption," Deutsche financial institution's Oliver Harvey wrote in a be aware to clients this week.
Indicators are that this isn't going to change any time quickly, and the united kingdom is prone to experience a protracted slowdown, with the economy running at a ability so much minimize than would have been anticipated had Britain chosen to stay in the European Union for a few years.
In a contemporary interview with industry Insider, for illustration, Peter Dixon, chief UK economist at Commerzbank argued that the economic system must assume a loss of output in comparison with if Britain had stayed within the european of greater than 2% via finish of 2018. This phenomenon is more likely to continue over a much longer horizon, progressively sucking existence from the economic system.
How is consumer spending slowing?
Customer items aren't just the apparent essentials like groceries, however develop to everything from automobiles to fridges to TVs to vacation trips. Basically, if that you can purchase it, it counts as part of patron spending.
The first facet of spending to undergo in a downturn is quite often the acquisition of latest automobiles. That's in view that even as automobiles are an main object for a lot of men and women, their lives will also be extended a lot more effortlessly than many gadgets.
Shopping a brand new vehicle is a enormous outlay, at the same time getting it fixed is steeply-priced, however most of the time not prohibitively so. When occasions get tough, individuals are likely to lengthen purchasing a brand new automobile, which in flip shows up in authentic knowledge concerning the number of latest cars being registered.
Knowledge launched on Tuesday showed that the quantity of latest automobiles registered privately fell sharply in August, continuing a pattern that has been going for the last two or so years, but has intensified in view that the referendum.
"private new automobile registrations fell 9.9% 12 months-over-yr in August, much worse than the 5.2% usual decline over the prior twelve months," Samuel Tombs of Pantheon Macroeconomics wrote on Tuesday morning.
"Low consumer self assurance and deteriorating affordability due to the weak pound endorse that the mid-2010s growth in car income has run out of mileage," he brought.
Subsequent to undergo is mainly greater ticket family gadgets like sofas and televisions where, like automobiles, their lifespan can also be accelerated, so purchasers are much less inclined to replace them when instances are hard. Deutsche bank's evaluation this week showed that each its key trackers of big ticket object spending are subdued proper now, and would worsen, as the chart below shows:
Deutsche financial institution
when they've stopped purchasing furnishings and electronics, Brits will subsequent sacrifice occurring excursion. This has began to occur, although not to the extent that occurred during the monetary challenge.
"UK traveller spending has tended to be well correlated to overall consumption, even though it simplest makes up a small quantity of total demand. Month-to-month information on UK visits abroad monitor this good. Visits abroad have slowed a lot lower than after the 2008 hindrance, regardless of the weakness within the alternate cost, however are tracking reduce," Deutsche's Harvey wrote.
Things are set to get worse
There are two causes to endorse that the purchaser slowdown which is dragging on the British economic climate is likely to get even worse. To begin with, inflation via almost all money owed has no longer yet hit a put up-Brexit vote top, and would extend earlier three% later this 12 months. Even greater costs will squeeze patrons tougher and sure worsen the purchaser slowdown.
Secondly, wage development despite the arguments of the financial institution of England does no longer appear like it will select up any time soon, thanks generally to predominant shifts in the best way Britain's labour market features.
Oxford Economics
Getting a pay upward push has end up more complicated. Britain can have numerous jobs greater than 32 million men and women in work to be exact - but few are getting above inflation income increases.
For illustration, these on so-known as zero-hours contracts could find it tough to get a pay rise when their boss shouldn't be even obliged to even give them any hours of work.
That is exacerbated by the truth that employees within the 21st century are a long way much less more likely to be part of a union than in, and as a result should not have the equal power to force employers fingers as they'd in the course of the later 1/2 of the 20th century.
There has additionally been another tremendous, more latest shift, a shift in the direction of the so-known as "gig economic system," a class of workers who're technically self-employed and paid per "gig," mainly working in provider-kind roles like deliveries and taxi-driving, more often than not with out set hours and with work assigned via a smartphone app.
Gig economic system workers tend to have a much better deal of flexibility in the way they work, but in turn, sacrifice some of the protections they'd acquire if they had been to have formal employee popularity.
Boosting wages for gig economic climate staff can also be difficult. Organizations in the gig economy like Uber, Deliveroo, and trouble set their rates centrally and on account that employees are conveniently their own bosses, asking for a lift and in turn stimulating wage development that method is just about inconceivable.
Unless policymakers can determine easy methods to get wages developing rapid than inflation, the British client is likely to be a drag on the economy instead than a boost to it.
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