If I was sat in the Prime Minister’s chair (I was, briefly), I’d start with the facts to help me with making decisions, and so, policy. There’s been a regrettable trend around some parts of the world to dispense with and even disparage facts that don’t suit the (particularly for populists) message.

Whatever your stance on leave or remain, it’s a fact, like night follows day, that if you put up barriers that which you did easily before will be harder afterwards. Brexit inevitably meant barriers to trade with our largest and easiest market, as a fact, and reduced trade. GDP was, despite all the denials, bound to fall and, as a fact, it has by some £100 billion per annum. That, in turn, voluntarily threw away some £35 billion in taxes that would have been provided for the nation each year and which are now going to be met by increased taxes on citizens and businesses that are likely to depress GDP further. Yet, despite the facts (and OBR confirmation of those facts), there is government denial that Brexit has made us poorer, with Covid and the war in Ukraine the only culprits, instead. This is not governance with the promised “Integrity”: it is deceitful.

Now, the government’s messages are the need for two things: a) stable finances; and b) growth. Growth could be created by looking at and implementing easier trade, with fewer barriers. However, there are two obstacles in the way: firstly, hardline Brexiter MPs who would see “Betrayal”; and, secondly, denial that Brexit has created any growth problem. The former can be dealt with by a cogent argument, well communicated, but the latter is really difficult to solve as it’s not admitted there’s a problem. Labour, for its part is keeping quiet, almost unable to mention the word Brexit. This is tricky as it’s a fact that there’s a problem but the government denies it, while other politicians just keep their heads down for political reasons.

Would an even adequately run business behave the same way? Can you imagine it introduces a raft of additional procedures and costs, sales drop 15% but the board then denies the drop in sales has anything to do with the additional procedures and costs? Of course not: it wouldn’t have done anything so daft in the first place but, moreover, if it had it would recognise the problem and fix it. For business, of course, commercial decisions tend to be logical and not saddled with the sometimes-toxic emotion that accompanies politics. “Freedom”, “Foreigners” (taking our jobs), “Betrayal” “Take back control”, “EU bureaucrats” etc. are not terms influencing decisions in most board rooms in the UK.

You can’t argue that the principle of a referendum on a major constitutional point in the direction of a country is unfair. It has consequences, of course, if there is a change of direction, as there was in the UK. The argument might logically be “The British people voted to be poorer [by voting for Brexit], and we have an obligation to deliver that…”. Except, of course, leave voters did not vote to be poorer because they were told [against all logic] that they would be better off, not worse off. Logic inevitably came about and we are, in fact, poorer.

There appears to be universal agreement across the political spectrum that “growth” would be good for the citizens of this country and fund some of its badly needed services and infrastructure. Surely, now is the time to allow facts a place at the table. Facts about trade will illustrate the individual issues and overall problem that needs to be addressed but there then needs to be acceptance of those facts, not delusion. It seems already likely (given findings of recent surveys of significantly changed public attitudes after the actual {not promised} results of our hard Brexit are becoming clear) that some practical measures to ease trade barriers to boost growth would not have the damaging political effect the parties apparently fear.

Come on, our political representatives! What are you afraid of? Let’s have practical solutions, not dogma or denial. I challenge you to present us with the facts about trade barriers and your practical solutions. The public and business will let you know their views – and you might be pleasantly surprised.

Written by John Boydell

Inflation in the UK is now at its highest for 40 years.

While a lot of media commentary has been on the cost-of-living increase for UK consumers – the Consumer Prices Index (CPI) rising by 9.4% in the 12 months to June 2022 – there has also been a major inflationary impact on UK businesses.

Indeed, it could easily be argued that the inflation pressure on UK business is greater than that on UK consumers – the Production Prices Index has risen by 24% in the 12 months to June 2022.

Consequently, any business that uses large quantities of energy (electricity, gas, or oil) in its production process and/or petrol or diesel for transportation of goods will have been especially affected by the recent inflationary pressures. In practice this effect applies to all goods and services consumed by all businesses.

Despite the doom and gloom of high inflation now is the time for every business to go back to basics, look at what it does and why. Seek out and redefine product or service Unique Selling Points, then focus on taking this message to market and create motivation for customers to buy higher value products and services. Sell on the value you are creating not price; this is a tough fight but one that is very much worthwhile taking on to secure long term business sustainability.

An ever-strengthening U.S. dollar has achieved parity with the Euro. This is the first time the US dollar has reached parity since the Euro was in its infancy over 20 years ago.

Why should we in the UK care about a strengthening US dollar or a depreciating Euro?

Background

The invasion of Ukraine sent shock waves through both the global food and energy markets – resulting in significant price hikes.

Food and energy are two significant basic needs for consumers. As a consequence of the requirement for many economies to import food and/or energy, those commodity price rises have fanned domestic inflation.

Also, with many global commodity prices set in US dollars, the strengthening US dollar has added to those importation costs and that inflationary pressure.

The USA is both a producer of grain and fossil fuels so, arguably, better able to ride out any turmoil in commodity markets. Having said that, inflation is currently a major issue in the USA – they way it is in many economies across the globe.

US Dollar Strength

Since World War Two, the US dollar has been considered a safe haven in times of global crises and, generally, there is a flight of capital to safe havens when global economic shocks occur.

Any flight of capital (from the Euro, Sterling etc.) will strengthen the US dollar and weaken the other currencies.

Also, the U.S. Federal Reserve has been relatively more aggressive in raising interest rates, thereby increasing yields on US Treasury Bonds, and making the US dollar even more attractive to investors.

All of that has resulted in a significant strengthening of the US dollar, particularly in the past few months.

It is not just the Euro that is under pressure

The Euro has been depreciating against the US dollar for over a year now. It is 15% down in the past 12 months – but 11% of that loss has occurred since the Russian invasion of Ukraine.

The Euro is not alone. Sterling is also down against the US dollar by 15% in the past year and 11% since the invasion of Ukraine.

Against the Japanese Yen, the US dollar has appreciated 26% in the past year with 21% of that gain since the invasion of Ukraine.

Even against that other traditionally safe haven currency, the Swiss Franc, the US dollar has appreciated over 6% in the past 12 months – almost all of that gain since the invasion of Ukraine.

Despite the recent media headlines, the Euro is not alone in being under pressure – albeit parity with the US dollar is an added psychological factor for the Euro.

Interestingly, the exchange rate for Sterling v Euro has not moved much in the past 12 months – it was 1.17 a year ago and is just above 1.18 now (down slightly from 1.19 at the time of the invasion of Ukraine). As such, the UK cannot ignore what is happening to the Euro.

What does this mean for businesses and consumers?

Movements in global currencies can have a major impact on businesses that sell their products abroad or depend on imported raw materials for inputs into their own finished goods.

Higher importation costs (plus a strong US dollar) put pressure on business operating margins that can only be repaired by raising selling prices. Factory prices rises, of course, lead to inflationary pressures. Factory price rises can also dampen consumer demand which in turn affects businesses cash generation and profitability.

Domestically, inflationary pressure is often tackled by raising interest rates but that also hits consumers through higher mortgage servicing costs.

Those significant cost of living increases lead to wage demands – we are seeing those and a greater incidence of strikes in support of higher wages.

As employee costs are another significant input for businesses, especially in the UK where our level of automation is below that of other major competitor economies, any wage increases will add to inflationary pressure.

In turn, that inflationary pressure would result in further factory price rises, put additional stress on consumer demand and, ultimately, lead to an increase in unemployment. That is a vicious cycle that can easily result in recession and, even, stagnation.

To answer the question raised at the start of this article – yes, we should care about the weakening Euro and the strengthening US dollar.

Written by Alan Wilson