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“There has been no recent effect of Brexit on inflation”
 | Business News Today

“There has been no recent effect of Brexit on inflation”

LBritish inflation reached 10.1% in July against 6.8% in France: should this be seen as an effect of Brexit? This could have led to an increase in inflation via the prices of imported products, through three channels: customs duties, non-tariff barriers and the exchange rate.

The trade agreement with the European Union enabled the United Kingdom to leave the single market on 1er January 2021, without the introduction of customs duties, which would have increased the cost of imports from the EU by 4.4% (half of British imports). Non-tariff barriers, with more uncertain figures, could have increased the costs of these imports by 10%. But unlike the EU, which immediately implemented controls on British products, the UK has postponed the introduction of controls on its imports from the EU, at least until early 2024.

Following the June 2016 referendum in favor of Brexit, the pound sterling fell by 11%, from 1.30 to 1.16 euros; it has since fluctuated between 1.10 and 1.20 euro. At the end of 2020, it was worth 1.10 euros, and has since returned to almost 1.20 euros – which has mitigated the rise in British import prices. There has therefore been no recent effect of Brexit on the cost of imports.

Read also (2016): “Brexit”: the day the United Kingdom left the Union

Inflation is not significantly higher in the UK than in the eurozone, where it averages 8.9%, including 9.6% in the Republic of Ireland, 10.7% in Spain and more 20% in the Baltic countries. France (along with Malta) is an exception, with the lowest inflation of the euro zone countries! If inflation across the Channel is higher than in France, it is mainly because the United Kingdom has not implemented a tariff shield on energy. In July, the increase in gas prices for households was almost 100% over one year, that of electricity by almost 50% and that of petroleum fuels by more than 110%.

Wage pressure

The acceleration of inflation, which has risen from 2% to 10% in one year, nevertheless increases tensions in wage negotiations. This is particularly the case in the transport sector, where strike calls have multiplied in recent weeks. In rail transport companies, wage increases proposed by employers were of the order of 5%. This would represent a loss of purchasing power of 5 points, but even more if we take into account the prospects for rising prices.

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