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French Carmaker Hikes Car Prices in Britain

PSA Group lifted prices of its Peugeot, Citroen and DS vehicles by an average of 2 percent make up for part of the pound’s 10 percent drop against the euro and its 13 percent fall versus the dollar since the June 23 Brexit referendum.

British consumers are starting to bear the costs of Brexit, with companies raising prices of everything from cars to carpets to counter a plunge in the pound caused by the U.K.’s vote to leave the European Union.

“We took a reasoned measure given the currency fluctuations,” the spokeswoman said, confirming an earlier report that its Peugeot 308 hatchback rose by 2.8 percent, or 435 pounds ($565).

While some companies have stood firm on prices, worried about losing market share in competitive U.K. businesses like groceries, others are moving quickly to pass along the effects of the weaker pound. The increases underline forecasts for an uptick in inflation after the country flirted with deflation last year.

 

The fall in the pound is one of several factors that could lift consumers’ bills. Depending on the outcome of the U.K.’s negotiations to leave the EU, the country might reimpose tariffs on imported goods. U.K. employers also face increases in the minimum wage.

U.K. consumer prices climbed an annual 0.5 percent in June. The Bank of England forecasts that inflation will accelerate through this year and next, hitting its 2 percent target at the end of 2017. The last time it was at that level was in December 2013.

Companies that manufacture or source many of their goods in the U.K. are insulated from the pound’s decline. That helps carmakers like Nissan Motor Co., which has a plant in Sunderland, England, that also supplies other European markets.

U.K. auto sales fell in June and grew only 0.1 percent in July as uncertainty over Brexit mounted. Parts provider Continental AG expects U.K. sales to fall in the second half of the year, but it raised prices in the U.K. on Aug. 1 because of the decline in the pound, Chief Financial Officer Wolfgang Schaefer said last week.

PSA imports all the vehicles it sells in the U.K., where it had an 8.5 percent market share last year. Several other European carmakers, including Peugeot’s French rival Renault SA, have said they have no plans to lift prices at this stage.

Ian Fletcher, a London-based analyst at IHS Automotive, said “it is pretty much inevitable” that others will follow PSA.

“The U.K. is a very important market for European auto makers,” he said in a phone interview. “We’re going to see pressure passed on to consumers,” because companies are not prepared to cut their profit margins.

-Bloomberg

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