A recent request from a long-standing client prompted me to look into the Brexit effect on home renovation. I don’t profess to be an expert on the full extent of Brexit and what it means for the nation. Nor do I offer any personal views on the referendum. What I can do is report direct effects which are influencing us and our clients, certainly in the short term.
The Value of Sterling
Strictly speaking, the main impact for our clients comes from the fall in the value of sterling. Although we have seen fluctuations in the past, this dramatic fall was a direct consequence of the vote. In essence, our pounds now buy far fewer dollars, euros and other currencies, so imported products are effectively more expensive. Unscrupulous suppliers might make capital under the guise of Brexit (the Marmite debacle springs to mind), but it is a fact that prices are rising for products supplied from overseas. The Brexit effect on home renovation, in a nutshell, is to reduce the value our clients get for their money.
The Rising Cost of Kitchen Appliances
A specific case is the cost of kitchen appliances from large European manufacturers. I looked into purchasing a hob for a client recently. I like to use my regular small retailer because he is local, provides a great service and looks to match on-line prices as closely as reasonable. We don’t mind paying a little bit extra to maintain that relationship. However, I noted that the “trade” price he quoted for the hob was still 15% higher than the same product from several major UK retailers.
I am used to negotiating with him, but 15% was a significant gap to bridge. On further investigation, it became clear that major UK retailers had acted quickly, purchasing products in extra large quantities across the board to avoid an immediate price increase. While these stocks last, they can maintain their lower price. Our friendly retailer did similar on a smaller scale, but he had to pick and choose his products more carefully because of his capacity to store (and then sell) such items. Unfortunately, my particular hob was not on his shopping list.
The result is that large retailers will be extremely competitive for the next 2 months or so. Then their prices are expected to hike upwards as they replenish their stocks with higher priced items. This fits with this week’s inflation figures which remained fairly static against expectations. No retailer wants to blink first and raise their prices before their competitors. But the pressure is building and the dam will burst. The impact will be higher prices which, inevitably, will be passed on to the consumer. As we all know, once prices go up, they rarely come down again, even when good economic conditions return. We get used to paying these higher prices and there they stay!
You’d be excused for thinking that buying “British” kitchen appliances might circumvent the problem. Unfortunately, many British-branded products are made in factories overseas so the issue remains. Even factories in the UK import components so, one way or another, the unfavourable exchange rate bites us.
The Oil Price
Another consequence of the depressed pound is the price of fuel. Oil is traded in dollars; our pounds now buy fewer dollars and so it costs more to fill up at the pump. Many of our renovation products are transported around the country by road and increasing fuel bills will be reflected in the price we pay.
Over the coming months we can expect to see the cost of renovation increase through the price of materials and imported items. Needless to say, Style Within will continue to drive prices down through negotiation, and provide best value for our clients. Whilst we may all feel the pinch in the UK, spare a thought for a British friend of mine who was planning to build a home overseas. With only pounds sterling in his pocket, he saw his projected build-price increase by £40 000 almost overnight. He’s waiting for the pound to rise in value!
Let’s hope the uncertainty is short-lived and that the pound recovers quickly. We can expect the Brexit effect on home renovation to increase costs in the short to medium term, but let’s see what pressure we can bring to bear on prices if sterling recovers to its pre-referendum levels.
the brexit effect on home renovation
It is apparent that the Brexit effect on home renovation is unwelcome, certainly in the short term. From a parochial viewpoint, we want our clients to get the best value for their money and with costs rising, we need to do all we can to minimise the impact on our clients. We have provided guidance on the cost of home renovation in which we assume an annual inflation rate of 3.5% to normalise figures at 2016 economic conditions. We suspect that we will need to revise these estimates upwards.
A happy outcome for the particular hob was that our local retailer got together with the manufacturer’s representative and kindly matched the internet price to the penny. This saved our client £60.
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