After the UK voted to leave the European Union in June, the pound promptly had its worst day in history against other major currencies. (Yes, ever.)
Almost two months on from the referendum, sterling is about 13% weaker against the dollar and near a three-year low versus the euro. The effect this has on the prices British businesses and consumers pay for things is laid bare by statistics released today (Aug. 16).
The price of goods bought by manufacturers for processing rose by 4.3% in July versus the year before. This was the first annual increase in nearly three years, driven upward by a 6.5% jump in import prices, which rose by the most since 2011.
More expensive inputs, naturally, results in pricier outputs. In July, the prices UK manufacturers charged for finished goods rose for the first time in two years:
The pro-Brexit camp says that a weaker pound is good for exports. That is true, in theory. In practice, however, much of what the UK exports relies on components bought from abroad, which are more expensive when the pound is weaker. An OECD study last year estimated that 23% of UK exports were made up of foreign content (pdf).
Consumer prices, meanwhile, rose by an annual 0.6% in July, taking the index to the highest level since November 2014. This, too, was more than analysts were expecting and a sign of things to come as Britain’s economy adjusts to a weaker pound.