The economic consequences of Brexit

[Digga]

anonymous said:

[redacted]

Driving to Germany later this week. Will pack plenty of Monster Munch.

[gavsdavs]

don4l said:

I was in Calais yesterday. The coach stopped at a supermarket which mainly caters for British tourists. Only one person (out of 32) bought anything. The weaker Pound meant that everything was as expensive, or more so, than here.

Good news for the UK.

Because yes, the relative price of Booze cruise lager is a key indicator on economic health for the uk. (/sarcasm)

Now consider that other things, like raw materials which cannot be bought from within the uk are now 20-25% more expensive than they were 3 months ago. Still good news for the UK ?

[Digga]

gavsdavs said:

Now consider that other things, like raw materials which cannot be bought from within the uk are now 20-25% more expensive than they were 3 months ago. Still good news for the UK ?

In terms of competing with the ROW, the position is neutral.

In terms of what UK consumers are able to afford to buy for themselves, it may be negative.

[andymadmak]

gavsdavs said:

Now consider that other things, like raw materials which cannot be bought from within the uk are now 20-25% more expensive than they were 3 months ago.

why? The currency has only moved around 10% or so lower...

[gavsdavs]

Digga said:

gavsdavs said:

Now consider that other things, like raw materials which cannot be bought from within the uk are now 20-25% more expensive than they were 3 months ago. Still good news for the UK ?

In terms of competing with the ROW, the position is neutral.

In terms of what UK consumers are able to afford to buy for themselves, it may be negative.

So I thought most global trade was conducted in the US dollar. (Happy to be corrected) So if a manufacturer in the UK wanted to buy a hundred tonnes of aluminium ore from an Australian mining vendor, they'd buy dollars with GBP, give the Australian vendor the required amount, who would then convert back to AUD to pay the staff that dug it out of the ground.

Would that not make the GB manufacturer subject to this change pretty much overnight ?

[AC43]

don4l said:

It seems that once you convince yourself that Brexit is a bad thing, no amount of reality will affect your thinking.

My problem is that my job means I spend a lot of time with the finance and risk functions of banks and insurers. And none of them can see anything but potential downside.

I've just come out a meeting with an insurer chewing the fat over the invevitable divergence of regulatory frameworks as we approach Brexit.

It means, inevitably, that financial institutions will end up have to adhere to EU regulations, US regulations and increasingly divergent UK regulations.

These people already employ hundreds if not thousands of expensive people doing all this stuff and the need to do even more is welcomed with a grim sense of inevitability.

Another little nail in the coffin of UK FS competitiveness.

[Digga]

gavsdavs said:

Digga said:

gavsdavs said:

Now consider that other things, like raw materials which cannot be bought from within the uk are now 20-25% more expensive than they were 3 months ago. Still good news for the UK ?

In terms of competing with the ROW, the position is neutral.

In terms of what UK consumers are able to afford to buy for themselves, it may be negative.

So I thought most global trade was conducted in the US dollar. (Happy to be corrected) So if a manufacturer in the UK wanted to buy a hundred tonnes of aluminium ore from an Australian mining vendor, they'd buy dollars with GBP, give the Australian vendor the required amount, who would then convert back to AUD to pay the staff that dug it out of the ground.

Would that not make the GB manufacturer subject to this change pretty much overnight ?

Think about that again. Very, very carefully, because if I have to draw a diagram it will be pretty graphic indeed.

Commodities are (by and large) the SAME PRICE everywhere. Exchange rates do not alter actual commodity prices.

[gavsdavs]

Digga said:

Think about that again. Very, very carefully, because if I have to draw a diagram it will be pretty graphic indeed.

Commodities are (by and large) the SAME PRICE everywhere. Exchange rates do not alter actual commodity prices.

You didn't answer my question about what currency is used for such transactions. I get it that the commodity is the same price everywhere. But not that we can all chose to buy in our own native currency, and that's where we have lost out.

Are you saying we can all buy aluminium ore from australia in whatever currency we fancy ? Do Australian miners offer quotes in the Zimbabwe dollar ? Or do they make life easy for themselves and agree on a common, stable currency (like the US Dollar).

Edited by gavsdavs on Monday 26th September 16:38

[Andy Zarse]

Digga said:

anonymous said:

[redacted]

Driving to Germany later this week. Will pack plenty of Monster Munch.

Beef I hope? Anyway you can't get it there and the French version is beyond st...

[Mrr T]

Murph7355 said:

steveatesh said:

...
Why are you writing about the potential loss of Passporting when MiFID II, which will go live in early 2018, ...

I wouldn't even risk a tenner on a bet to support when MIFID II will go live

There's merit in much of the post, but still some risk for the financial markets with Brexit. But then there always, always has been. Brexit or not. And to me it was not material in my vote (despite, or maybe because of (!), me having worked in the sector for 20yrs).

I have answered this in the other brexit thread. The posters is half right. MIFID2 allows countries with equivalence (regulatory similar protections, rule of law etc) to apply (this is the vital bit) for passporting. I do believe MIFID2 will be live if not 1st quarter 2018 certainly by the end of 2018. However, as I have already made clear passport is not automatic on equivalence. ESMA must approve. The problem is ESMA is not very efficient. For example some access to the EU financial markets where allowed under AIFMD. This was finally enacted across the EU by 2014. Its now 2 years later and ESMA still has not come up with the rules for AIFMD passporting.

[Digga]

gavsdavs said:

Digga said:

Think about that again. Very, very carefully, because if I have to draw a diagram it will be pretty graphic indeed.

Commodities are (by and large) the SAME PRICE everywhere. Exchange rates do not alter actual commodity prices.

You didn't answer my question about what currency is used for such transactions. I get it that the commodity is the same price everywhere. But not that we can all chose to buy in our own native currency, and that's where we have lost out.

Are you saying we can all buy aluminium ore from australia in whatever currency we fancy ? Do Australian miners offer quotes in the Zimbabwe dollar ? Or do they make life easy for themselves and agree on a common, stable currency (like the US Dollar).

Edited by gavsdavs on Monday 26th September 16:38

IT IS THE SAME PRICE.

See my first reply.

[Digga]

Andy Zarse said:

Beef I hope? Anyway you can't get it there and the French version is beyond st...

Noted!

[andymadmak]

Digga said:

IT IS THE SAME PRICE.

See my first reply.

Indeed it is the same price for all. (in USD)

And while you're about it gavsdavs can you answer my earlier question?

andymadmak said:

gavsdavs said:

Now consider that other things, like raw materials which cannot be bought from within the uk are now 20-25% more expensive than they were 3 months ago.

why 20 - 25%? The currency has only moved around 10% or so lower...

[don4l]

gavsdavs said:

don4l said:

I was in Calais yesterday. The coach stopped at a supermarket which mainly caters for British tourists. Only one person (out of 32) bought anything. The weaker Pound meant that everything was as expensive, or more so, than here.

Good news for the UK.

Because yes, the relative price of Booze cruise lager is a key indicator on economic health for the uk. (/sarcasm)

Now consider that other things, like raw materials which cannot be bought from within the uk are now 20-25% more expensive than they were 3 months ago. Still good news for the UK ?

You have missed the point.

All of those people will buy the same stuff in UK supermarkets.

Raw materials have indeed gone up. So, that element is indeed neutral. However, any value added in the UK will be at the new exchange rate. So, we can either lower the Euro price, or we can maqke more profit.

I'll work through a very simple example.

We will do exactly the same transaction with two exchange rates. Our first example will assume that a Pound is worth 1.50 Euros. The second transaction will see the Pound only worth 1.00 Euro.

We are going to simply import an item, add on some profit, and then export it again.

The item costs €150.00, so that is £100.00. We are going for a gross profit of 40%. Therefore our sell price is £166.00 which is €249.00


Now, the Pound falls, and is only worth a Euro.

The item still copsts €150.00. This means that we have to pay £150.00. It has gone up by 50%.

If we sell at the same price as before, €249.00, this will mean that our Sterling price is £249.00.

Our profit has gone from £66.00 to £99.00.

We could of course, drop our price in an effort to drive up sales, and still make more money than we used to.

[gavsdavs]

andymadmak said:

Indeed it is the same price for all. (in USD)

But what if the price you acquire USD changes with ?

andymadmak said:

And while you're about it gavsdavs can you answer my earlier question?

andymadmak said:

gavsdavs said:

Now consider that other things, like raw materials which cannot be bought from within the uk are now 20-25% more expensive than they were 3 months ago.

why 20 - 25%? The currency has only moved around 10% or so lower...

/yawn. I am not to get drawn into a side argument about on how many percent our currency has LOST since Brexit. Did you not see the link I posted already ?

Shouldn't have commented here. It looks like you are wedded to a particular outcome and not much is going to change your view. Certainly not gentle discussion.

-edit-

From a 2 minute search I've found (from July 2016):
https://www.poundsterlinglive.com/eur/5148-gbp-vs-...

This says "In plain english this means that the combination of these two factors has reduced radically - or will reduce - the amount of foreign investment coming into the UK, which translates into less demand for sterling."

Now I'm not trying to call this the absolute truth, but I would welcome anything you can provide which suggests there is a positive future for the value of the pound (or what we might benefit from, quantities of foreign interest/investment into the UK).

Edited by gavsdavs on Monday 26th September 17:12

[andymadmak]

gavsdavs said:

andymadmak said:

Indeed it is the same price for all. (in USD)

But what if the price you acquire USD changes with ?

andymadmak said:

And while you're about it gavsdavs can you answer my earlier question?

andymadmak said:

gavsdavs said:

Now consider that other things, like raw materials which cannot be bought from within the uk are now 20-25% more expensive than they were 3 months ago.

why 20 - 25%? The currency has only moved around 10% or so lower...

/yawn. I am not to get drawn into a side argument about on how many percent our currency has LOST since Brexit. Did you not see the link I posted already ?

Shouldn't have commented here. It looks like you are wedded to a particular outcome and not much is going to change your view. Certainly not gentle discussion.

Crikey this is hard work. The dollar price is the same. The amount of change in exchange rate is what marks the differences.
The pound was chugging along between 145 and 150 in the months leading up to June 23rd. Its now bouncing around the low 130s. The % currency change is therefore less than 15% - but you are claiming that prices have risen 20 - 25%. Hence my question!

[gavsdavs]

andymadmak said:

Crikey this is hard work. The dollar price is the same. The amount of change in exchange rate is what marks the differences.
The pound was chugging along between 145 and 150 in the months leading up to June 23rd. Its now bouncing around the low 130s. The % currency change is therefore less than 15% - but you are claiming that prices have risen 20 - 25%. Hence my question!

Thread subject is "The economic consequences of Brexit"

Thread subject is not "Pedantic squabbling about exact percentages of currency devalutation"

But you knock yourself out anyway.

[andymadmak]

gavsdavs said:

andymadmak said:

Crikey this is hard work. The dollar price is the same. The amount of change in exchange rate is what marks the differences.
The pound was chugging along between 145 and 150 in the months leading up to June 23rd. Its now bouncing around the low 130s. The % currency change is therefore less than 15% - but you are claiming that prices have risen 20 - 25%. Hence my question!

Thread subject is "The economic consequences of Brexit"

Thread subject is not "Pedantic squabbling about exact percentages of currency devalutation"

But you knock yourself out anyway.

You claimed a 20 - 25% price increase - presumably as as a consequence of the Brexit vote. I merely asked you how you got to your number. You cited the currency chart (actually the same one I use every day) which shows that the real change is probably less than 15%. I'm hardly knocking myself out or being pedantic when I am just trying to get to the bottom of your figures! So now we know it was just some hyperbole on your part we can all move on.

[anonymous-user]

don4l said:

You have missed the point.

All of those people will buy the same stuff in UK supermarkets.

Raw materials have indeed gone up. So, that element is indeed neutral. However, any value added in the UK will be at the new exchange rate. So, we can either lower the Euro price, or we can maqke more profit.

I'll work through a very simple example.

We will do exactly the same transaction with two exchange rates. Our first example will assume that a Pound is worth 1.50 Euros. The second transaction will see the Pound only worth 1.00 Euro.

We are going to simply import an item, add on some profit, and then export it again.

The item costs €150.00, so that is £100.00. We are going for a gross profit of 40%. Therefore our sell price is £166.00 which is €249.00


Now, the Pound falls, and is only worth a Euro.

The item still copsts €150.00. This means that we have to pay £150.00. It has gone up by 50%.

If we sell at the same price as before, €249.00, this will mean that our Sterling price is £249.00.

Our profit has gone from £66.00 to £99.00.

We could of course, drop our price in an effort to drive up sales, and still make more money than we used to.

Got it !

All we need to do is change our sell price from £166 to £249 or not use sterling.

[walm]

Ghibli said:

All we need to do is change our sell price from £166 to £249 or not use sterling.

The selling price was in EUR though so that is what happens for exporters.

For all the companies who sell things in dollars or euros but have at least SOME GBP costs (e.g. labour) then Don is right. They will make more money.
Even if (almost) EVERYTHING was in USD, for example, but they happened to be a GBP listed company (e.g. BP) then the value of the company goes up a lot because those USDs they earn in profits are worth a lot more GBP now.

This is what the papers mean when they say "the UK will be more competitive with a low GBP".
Our labour is cheaper for EVERYONE ELSE to buy.

The negative side of it is that imports for Brits become more expensive.
So yes - the price will have to rise in GBP, which hurts UK consumers.
This is well documented by Dell, Apple and others raising the price of their products almost immediately post Brexit since all their costs for making those products are USD and getting paid in a weak GBP was squeezing their profits downwards.