The British pound has tumbled around 17 percent since the UK voted to leave the EU. While a weak pound is good for exports and tourism– it also drives up the cost of imports.

The value of the British pound has been surging since early October, but Britain is still the place to find bargains on luxury brands like Prada or Luis Vuitton. That’s brought hordes of international shoppers to the British capital.

Minghao has lived in London for over five years. Lately, she’s been busy helping friends in China to buy luxury goods here. While many of her friends have expressed concern about price hikes if the pound continues to fall, Minghao reassures them that Britain remains one of the best places in the world to get a good deal.

“After the Brexit vote, the exchange rate between pound and Renminbi fell from 9.7 to 8.2. Now, the pound recovered to between 8.4 to 8.5 against Renminbi. It is like a 10 percent to 15 percent discount for luxury goods, such as Louis Vuitton and Chanel. Despite the price increase, Britain is still regarded as a paradise for luxury shoppers.” said Wu Minghao.

The fall in sterling is passed through to consumers. Food and clothes are becoming more and more expensive, as Britain imports most of its goods. The country is on the brink of an inflationary spike.
 
In the near term, the Bank of England expects retail prices are to rise faster than the median household income in Britain. That will put a squeeze on people’s living standards…which could also lead to falling consumption.

“It will automatically lower the living standards as wages grow as we have and inflation growth as we have. So in that sense, for every pound someone earns, some could consume less of any given good.”said James Warren,research fellow of National Inst. of Economic & Social Research.

The Bank of England has also warned consumers to expect a sharp rise in inflation next year, overshooting its two percent target.

Which gives the bank a tough choice between keeping inflation in check and shoring up growth.

Bank of England governor Mark Carney said “Despite that more modest medium term growth outlook, CPI and inflation is expected to higher throughout the 3 year forecast period that the committee's August projections. This is largely the result of the renewed depreciation of the Sterling. In our central projection, the inflation rises from the current level of 1 percent to around 2.45 percent in the middle of 2018 before fall back gradually after.”

The UK economy has remained resilient after the Brexit vote, but with volatile currency exchange rates great uncertainty remains.