So this week we have seen the aftermath of the election and discussions are now taking place on what the result (and the minority Government) could mean for business. The pound, which weakened as soon as the exit polls suggested a minority government, has gradually grown in strength this week. Inflation has risen, whilst consumer spending has reduced in most areas. Read on to find out more about this week in business.
Brexit: Many argue that by failing to win enough seats for a majority Government, Theresa May has lost her mandate for a ‘hard Brexit’. Chief Executive of Aston Martin, Andy Palmer, spoke of the negative effects of uncertainty around what will happen next week or next month in terms of trade barriers and how it may discourage investment. With lack of clarity in terms of the relationship we will have with EU member countries, businesses may be hesitant to invest until the details of our exit from the European Union are clearer.
Strength of the Pound: On Monday, the pound continued to drop in value against the dollar. A significant reason for this is the political uncertainty in the country. On Tuesday, the rise in inflation saw the pound grow marginally against other currencies. This was because many felt that the Bank of England could restrain inflation by raising interest rates (making the pound more attractive). On Thursday, the committee in charge of setting interest rates for the Bank of England decided not to raise interest rates in a close vote. Whilst rates did not rise, the close vote suggested they will in the foreseeable future. This resulted in the pound increasing in strength against foreign currency. This steady growth in strength continued for the rest of the week.
Spending falls: A survey conducted by Visa showed that physical stores saw sales drop at their fastest pace for over five years in May. Spending at hotels and restaurants did increase, despite the trend of consumers reducing what they spend. The Visa survey suggested that overall spending was 8% lower than in 2016. A suggested reason for this is that wage growth is behind inflation for the first time since 2014. The latest inflation rate is the highest since June 2013, and above the Bank of England’s 2% target.
Interest rates remain the same: On Thursday, the Monetary Policy Committee (who are in charge of setting the rate of interest for the Bank of England) decided to keep the base rate of interest at 0.25%. This shocked many, as it was suggested the rate may have risen in an attempt to restrain the quickly growing rate of inflation. Five members of the committee voted for the base rate to remain the same, whilst three voted for a raise. This close vote suggests that whilst a rise in the base rate of interest is not imminent, it is certainly likely to come in the near future.
Amazon plan to enter the supermarket industry: On Friday, it was announced that online retail giant Amazon planned to purchase Whole Foods, a high-end supermarket chain. What can be taken from this? Perhaps, one thing that this highlights is the apparent need for physical stores, even for big players such as Amazon. The announcement saw shares of both Amazon and Whole Foods rise, despite the current difficulties Whole Foods are facing.
These, for me, are the big business related news stories of this week. Time will tell what relationship the UK will have with EU member countries post-Brexit, and how this will affect trade. Many are spending less, which may damage sales of companies who provide luxuries rather than necessities.
Thanks for reading!