With the Chancellor’s spending review, we’re now left waiting to see how it will affect us in real terms. It’s difficult to digest and understand the longer term implications of billions of pounds in cuts, but there will be countless knock on effects for us all, some of which are already happening. For example, although these cuts show the financial markets that the UK is serious about reducing the deficit (and therefore a good thing!) there will be hard times before things get better, and the mention by the press of industrial unrest and union action has actually weakened the pound in the short term.
It’s now back at 1.10 Euro which is the same rate as 12 months ago when wine importers were throwing themselves off Tower Bridge! I’ve been to France three times in the last three months and was horrified by the prices. A light lunch for two was 50 Euros, a McDonalds for two was 20 Euros. At these prices an exchange rate of 1.70 Euros to the pound (where the pound was originally when the Euro was launched) is about right. The current rate makes everything purchased in Europe approximately 50 % more than it should be.
It’s going to take a long long time for the pound to recover, several years of very slow increase. Which means that European wines will remain expensive, and so will those from other countries as the pound is weak everywhere at present. It’s now below AUS$1.59 where it should be AUS$2.50! And US$1.57 where it was over US$2 not so long ago. The only hope of any recovery for the pound is for our European cousins, the Germans, to pull out of the Euro and let it fall to a realistic exchange rate, as the rest of the Eurozone is basically skint. This is also the only hope for getting countries like Greece, Spain and Portugal out of recession too, as the strong Euro means they can’t export anything and get their economies moving again.
In the UK, with the VAT increasing to 20% in January, and people being generally a lot worse off due to higher taxes and higher prices on virtually everything they buy, we will see a change in the way we buy things. It won’t be a sudden stop to purchasing, but it will mean people will choose carefully what to spend their money on. For example many will cut down the night out to the restaurant and opt for a night in with a decent bottle of wine instead. Others will cut out going to the pub – a decent night out costs £50 these days. Add in babysitters, taxis and a kebab, and it becomes a major expense. For the same money you could entertain four friends on fine food and wine, then have them entertain you the following week for free!
People will look for the best deal before they purchase. There are many competitive businesses out there who offer keen prices who will benefit from this metaphorical belt tightening, but there are many dinosaurs who will bury their heads in the sand and continue to operate as they have always done who will lose out. Then there are the unscrupulous businesses like supermarkets who will recognise the extra pull a 50% off sticker will have, who will be advertising dozens of wines at artificially high prices for the mandatory two weeks on a top shelf in the Aberdeen branch, so that the following week they can blitz it in every branch across the UK as a legitimate half price deal! Remember you get what you pay for, even in this economic climate. I advise stay in one extra night a week and use the money you’ve saved to buy some good wine online, then you’ve saved on the petrol to the supermarket too.