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I am far from a Tony Blair fan. Personally, I feel that much of the country’s current sentiment around “foreigners” and refugees which led to the Brexit vote was directly caused by his decision to invade Iraq with George Bush. But last week, he said a few things which made sense, and I think we may need to listen.
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So lets look at the facts… over the November to January period, retail sales were down 0.3% on the previous quarter, which was the weakest underlying performance for 3 years according to the Office for National Statistics. Economists had previously predicted a rise. December’s already weak performance was revised even lower in the latest sales update showing a 2.1% decline over Christmas.
Inflation hit 1.8% in January, it’s highest level for more than 2 years, largely due to the pressure that the pound is under and the resulting rising oil prices. Now we are hearing warnings that consumer spending is going to come under further pressure as wage growth struggles to stay ahead of inflation, meaning we are only going to feel increasingly poorer. So hoping for economic growth based upon strong consumer spending seems unlikely.
James Smith, economist at the bank ING, said inflation would push higher this year, putting more pressure on household finances.
“It looks like the UK consumer’s remarkable post-Brexit resilience is finally coming to an end,” said Smith.
As a result the Bank of England has promised to keep interest rates at the record low of 0.25% for the whole of this year, but this is hardly going to help the already significantly devalued pound. In mid-morning trading last Friday, Sterling was down 0.7% to $1.2406, a drop of 0.4% over Thursday. And the longer term view is even gloomier, with the pound currently 11% down against the Euro since the Brexit vote, and 17% down against the dollar.
So it would appear that we are all gradually starting to realise what Brexit might actually mean, and we are adjusting our spending to match. So does Blair have a point when he says that the electorate as a whole never really understood what we were voting for? I think he may have a point.