Recently, a new hashtag popped up on the internet: #Marmitegate. Social media users in the UK were following a news story about a potential 10% rise in the price of Marmite, which is a traditional British product: a sticky paste made from yeast extract, Marmite can be smeared on toast. Not dissimilar from Spam (though certainly more popular), it elicits strong opinions both from those who love it and those who hate it.
What does the price of Marmite have to do with Brexit? It all has to do with the cost of uncertainty. The UK is currently in the midst of figuring out how their exit from the European Union (the “Brexit”) will happen. There are plenty of unknowns. Theresa May, who was named Prime Minister in July, has said that by the end of the first quarter of 2017 the UK will begin its exit from the EU. The process is expected to take a little over two years.
But it’s unclear whether the exit will be a “hard” Brexit or a “soft” Brexit. According to the BBC, a “hard” Brexit could involve the UK holding fast on issues like prohibiting the free movement of people across borders. This would mean it would risk access to the EU single market, and that the UK and EU would likely apply tariffs and other trade restrictions on each other. A “soft” Brexit would preserve some amount of free movement, and would retain access to the single market.
This lack of clarity about what type of Brexit will occur has affected the value of the pound. The pound has fallen 5% against the dollar in the last month, and has fallen 18% since the vote on Brexit occurred in June. It currently stands at $1.22. “Who wants to buy sterling in this environment? I don’t see anyone who wants to,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman, in an interview with Marketwatch. Some economists see the pound falling further in the months ahead.
Which brings us back to Marmite. A dropping pound means decreased margins for those selling goods into the UK market. And suppliers will act to preserve their margins. One of the largest suppliers of goods to UK retailers is the Dutch giant Unilever, a consumer brands company that announced it would be increasing its costs to Tesco, the largest UK grocery chain, citing the drop in the pound. Based on this news, Tesco decided to increase its online prices for products such as Marmite by about 10% to keep its own margins intact.
The public reaction was swift and unforgiving. Critics said that Unilever was using the drop in the pound as an excuse to sneak in a price rise. And #Marmitegate began trending. The stock prices of both Tesco and Unilever fell. But within a day, all had been resolved, and the price rise was averted; both companies came to an agreement and reassured their customers. The PR win appeared to be with Tesco, who claimed that they had stood up for the “little guy.”
Although the dust has settled for now, this will not be the only time these two companies will deal with the impact of the currency issues from Brexit, and they’re not the only companies that will have to do so. Unilever and Tesco just happen to be large, well-known enterprises, and their products were much-loved, widely-known consumer goods. But the economic impact of Brexit will affect suppliers of all sizes, and many are just starting to feel Brexit’s consequences. The British Retail Consortium said that shops will try to keep prices stable for customers, but that at some point, the cost of items on the shelves would reflect the inflationary pressures within the system.
No one knows how the Brexit will unfold. No one knows how far the pound will ultimately fall. And no one knows the ultimate impact on the consumer. But there is inflation on the horizon, and it will affect more than just the price of Marmite.