Most businesses opposed leaving the European Union, but some haven’t done so badly out of the Brexit vote – at least thus far. This morning the FT has set out who it thinks the winners are: among those with more brass in their pockets are foreign property investors, exporters and of course the tourism industry – the lower the pound, the further your dollars, Euros and yuan go when visiting the UK. MT imagines lobbying firms won’t do too badly out of it either.
Importers - or those UK-based multinational firms which report in dollars or euros rather than pounds - will be feeling less gleeful. When Unilever tried to increase what it was charging Tesco for all its Marmite, Ben & Jerry’s and Hellman’s mayonnaise the other week, commentators predicted it wouldn’t be the last controversy of its kind. And today they were proved correct, as Microsoft announced it would be putting up its prices for some of its business services by as much as 22% - more than twice the rise Unilever tried to get Tesco to agree to. It has the made the sensible decision of going after business customers, who will find it harder to switch to another provider, while leaving consumer prices at the same level.
In pure economic terms, this type of behaviour is totally understandable. The pound has plunged around 20% against the dollar since June 23 and shows few signs of recovery. From Microsoft’s perspective, it’s getting fewer dollars for all the software subscriptions it sells, so why wouldn’t it put the price up? In Unilever’s case, while some of its products are manufactured in the UK, its results are reported (and its investors are paid) in Euros, so a fall in the pound is bad for the finances of its British division.
But while it’s not unreasonable for businesses to try to recoup their losses, there’s a danger this could harm their reputation. Some have suggested businesses’ actions since the referendum have been an attempt to continue ‘scaremongering’ in the hope of undoing the result. MT overheard somebody in the pub yesterday suggesting banks looking to leave London were simply ‘cutting off their nose to spite their face’ (or perhaps they just want to actually, you know, be able to do business in the EU).
More reasonable is the claim that some businesses are just using Brexit as an excuse for doing things they wanted to do anyway. It’s certainly easier to say you are laying off a bunch of workers for reasons that are ‘out of your hands’ than because you want to protect your margins by making your operations a bit slicker. And it’s probably fair to suggest that if the pound miraculously rebounds to $1.50, Microsoft won’t be in any hurry to slash its prices again.
Unfortunately, there’s only so much pain that businesses can endure. If we end up with a so-called ‘hard Brexit’, as still seems most likely, chances are that the low exchange rate will become the new normal and imports will be more expensive for a long while to come – and that’s before we see impact of a new trading relationship with the rest of Europe. Affected businesses will be left with little choice but to change their prices, or even cut their headcounts.
When such problems are genuinely the result of the low pound or other Brexit complications, honesty is the best policy. But if businesses start taking the mick, blaming all of their ills on the referendum result, they will find short shrift – and damage the public’s already shaky trust in UK Plc even more.