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Brexit uncertainty pushes up raw material costs

"With uncertainties prevailing around Brexit, British clothing retailer Next recently warned about a tough trading year ahead. Shares in Next slid 11 per cent on the news, dragging down stock values of clothing competitors Marks & Spencer and Associated British Foods, which owns budget garment chain Primark. In a trading update, Next said weak pound would result in garment prices rising by up to 5 per cent in its financial year to January 2018. “In the year ahead we face a number of inflationary pressures in our cost base,” Next said in a statement."

 

 

Brexit uncertainty pushes up raw material

 

With uncertainties prevailing around Brexit, British clothing retailer Next recently warned about a tough trading year ahead. Shares in Next slid 11 per cent on the news, dragging down stock values of clothing competitors Marks & Spencer and Associated British Foods, which owns budget garment chain Primark. In a trading update, Next said weak pound would result in garment prices rising by up to 5 per cent in its financial year to January 2018. “In the year ahead we face a number of inflationary pressures in our cost base,” Next said in a statement.

Brexit uncertainty pushes up raw material costs

 

British annual inflation is at the highest level in more than two years as a slide in sterling to multi-year lows against the dollar and euro following the Brexit vote in June has lifted the cost of raw materials imported by Britain. “We may see a further squeeze in general spending as inflation begins to erode real earnings growth,” Next added. Its overseas sales would be boosted this year by the currency’s weakness making the UK’s exported goods more price-competitive for foreign buyers. Next says “In the light of exceptional levels of uncertainty in the clothing sector and with little visibility of the approach the UK government will be taking to Brexit”, the company decided to bring forward the announcement of dividend payments to shareholders through the use of surplus cash.

Sliding shares

Share market had a different story to tell with shares in Next crashing 11 per cent to £42.43 in morning trades on London’s benchmark FTSE 100 index, which was flat. Shares in Marks & Spencer shed 4.5 per cent and Associated British Foods slid 4.0 per cent compared with Tuesday’s closing values (3 January).

Analysts say, across the UK market, investors need to start to face up to the additional challenges associated with the long and tortuous Brexit process. So far, this has mainly involved winners and losers from a weak pound. As 2017 unfolds, the effects are likely to be felt more widely across the UK economy.

 
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