Drinks industry counts down a year to Brexit

It is just a year until Britain leaves the EU on March 29, 2019 but nobody has a firm idea what the economic landscape will look like in 12 months time.

Political posturing in London and Brussels aside, global companies and pressure groups are lobbying heavily to steer both sides to as “soft” a Brexit as possible to mitigate disruption. Meanwhile, President Trump is threatening a global trade war by declaring unilateral tariffs on a range of imports as part of his “America First” philosophy. The EU has threatened to retaliate, possibly barring imports of bourbon among other products.

It is not a picture to inspire confidence, especially as global stock markets are wobbling.

At home, inflation rose to 3% at the end of 2017, the Bank of England has pointed strongly to interest rates going up one, two or even three times this year and wages are being squeezed. Little wonder that the growth in UK consumer spending halved from about 3% at the end of 2016 to 1.4% in the final quarter of 2017.

Yet economists predict that Mr and Mrs John Bull are unlikely to take much heed of the pervading uncertainty and that their spending, especially on leisure products and activities, will increase in the run-up to Brexit.

Capital Economics, the leading independent forecaster, believes that inflation will moderate this year and that wage growth will pick up as employment expands. Further, it predicts that most households can handle rising interest rates as most home loans are on fixed rates.

Overall, Capital Economics expects consumer spending to grow by 1.5% this year in real (after inflation) terms and by 2% in 2019, despite Brexit. Agreement on a “soft” Brexit could boost those figures.

While many drink importers are only now catching up with the devaluation of sterling and raising their prices, “pubs and restaurants should fare well as real income growth recovers this year,” Capital Economics says. And the easing of the pay squeeze “bodes well” for the wider leisure sector as consumers tend to spend most of any increase in disposable income in it.

Overall, spending on consumer services such as restaurant meals, hotels and leisure activities “looks set to continue to fare well over the next few years.” There is a caveat about hotels, however because the beneficial effect of the weaker pound is beginning to diminish, meaning that the tourist numbers may ease.

In real terms, Capital Economics predicts that after allowing for inflation, spending on food and drink will grow by 3.% this year, slowing to 2% in 2019 and 2% in 2020. Real spending in pubs and restaurants will rise by 2% in both this year and next, accelerating to 2.5% in 2020. Growth in hotel trade is predicted to rise by 3% in each of the next three years.