Yesterday saw two major announcements: the government lost its case in the High Court and is now unable to trigger Article 50 without parliamentary approval, and the Bank of England will be keeping interest rates on hold at their record low of 0.25 percent.
The High Court’s decision was met with mixed reactions – some saw it as a victory for parliamentary supremacy, with others seeing it as an unnecessary obstacle in the way of negotiating a Brexit – but both agreed it was historic. In the wake of that, the Bank of England’s monetary policy announcement seemed a little undramatic – but it still has important ramifications.
According to Phil Foster, Managing Director of Love Energy Savings, the High Court decision will mean more uncertainty for the financial markets.
“The High Court ruling today will not have done much to remedy this uncertainty, throwing into question the ability of Theresa May to invoke Article 50 in March 2017 as previously speculated.
“Despite the pound’s value experiencing an uplift, this is not indicative of an improvement in investor confidence long term. We can rest assured that the next few months will be ones of uncertainty, not just economically but also politically, as the democratic will of the people is challenged by, well… democracy.”
The Bank of England highlighted growing inflation in the UK, usually a sign of a healthy economy. However, according to Foster, it may not be good news for businesses:
“The issue that may now face businesses, as it continues to rise, is the impact it will have on real wages. As prices rise, employees will be calling for wage increases to match the rate of inflation, with some businesses already struggling to make ends meet in the current economic climate, this additional cost could be the final nail in their coffin.
“It is a delicate balancing act between ensuring that price levels support growth, and compensate for the depreciation of sterling, without placing additional pressure on those who are already feeling the strain.”
With drawn-out Brexit negotiations and the threat of higher prices, it may be a difficult environment for small and medium-sized businesses.
“In the meantime, it is vital that SMEs save money where possible, to shield themselves from higher prices and the demands for wage increases. It has therefore never been more important for businesses to micro-manage their finances,” Foster added.
04/11/2016
