FXstreet.com (Barcelona) - According to British Economist Samuel Tomes at Capital Economics, “The pound sterling’s rise will directly lower the price of consumer goods imports, though it will have wider effects too – the reduced competitiveness of UK exports dampens the chances of a net export led recovery, thus weakening GDP growth and general inflationary pressures. Moreover, lower import prices will put pressure on domestic competitors to cut their prices too. Lower imported input costs will also reduce inflationary pressures further up the supply chain.”
The direct impact on consumer goods import prices is the easiest to quantify, as past experience suggests that the 6% rise in sterling will prompt import prices to fall by 3%, with overseas suppliers pocketing the rest in the form of higher foreign currency prices and thus higher profits. However, “the weakness of consumer demand is likely to mean that the degree of pass-through from the lower pound to import prices is greater than usual. As such, we think that the price of consumer goods imports could fall by around 5%.” Tomes adds.
The direct impact on consumer goods import prices is the easiest to quantify, as past experience suggests that the 6% rise in sterling will prompt import prices to fall by 3%, with overseas suppliers pocketing the rest in the form of higher foreign currency prices and thus higher profits. However, “the weakness of consumer demand is likely to mean that the degree of pass-through from the lower pound to import prices is greater than usual. As such, we think that the price of consumer goods imports could fall by around 5%.” Tomes adds.
