We’re overdue for another look at Brexit. What’s happening in the UK economy and how are consumers and business responding to the eventual departure from the EU? As you might expect, it depends. We’re here with an update on Brexit’s impact to help you make sense of what’s ahead.
The New York Times reports on the EU’s challenge of governing, satisfying member countries’ agendas and a growing list of crises. UK online sales were up 16% in September, although IMRG Capgemini warned the effects could be short-term. While SME business confidence is up, economic uncertainty is at 31% among retailers and Brexit concerns follow at 19%.
After operating for 122 years in Britain, Smiffys moved its headquarters to the Netherlands because 40% of its business is in the EU. British Retail Consortium Chair Richard Baker warns of higher costs to retailers and potential price increases as a result of Brexit and a 20% drop in currency. Baker shared BRC’s three-point retail strategy at a UK conference. Bank of England Governor Mark Carney warned that sterling’s slump following the EU referendum will cause an inflation rise on some products including food.
Costs are rising for retailers, electronics and carmakers and consumer prices will follow according to a Wall Street Journal report. Former deputy PM Nic Clegg warns of “crippling” increases in wine and other food prices post-Brexit and “a triple whammy of punishing tariffs, customs checks and workforce shortages.” Despite the gloom, Capital Economics says the majority of British SMEs expect to grow revenue and jobs over the coming 12 months.
While some UK companies consider relocating, Web-design company MBJ London and real-estate investment platform Brickvest both warned of red tape and delays in relocating to Berlin. International fashion retailer Yoox Net-a-Porter Group continued plans to centralize operations in London. 59% of e-commerce companies consider the US a prime market though only 44% are selling there and only 13% plan to sell to the US according Global-e research. Watch for a potential significant fall in GDP and customs clearance hold-ups in UK ports post-Brexit according to a paper circulating in British cabinet.
Brexit is impacting business costs, threatening rising prices for consumers and creating uncertainty. That’s not a recipe for growth.
‘Brexit,’ Migration, Walloons: EU’s List of Crises Keeps Growing
It has come to this for the European Union: Its trade policy was being held hostage on Thursday by the Walloons.
Facing a set of debilitating crises, the bloc’s leaders assembled on Thursday for a two-day summit meeting that only underscored how the fractious domestic politics of its 28 member countries are undercutting its ability to confront mounting challenges and restore a sense of common purpose.
An accord with Ukraine backed by every other country risked being derailed by the Netherlands, highlighting again the European Union’s inability to carry out a muscular foreign policy. Consensus over a toughening of sanctions policy toward Russia appeared as elusive as ever despite Moscow’s escalation of the conflict in Syria, reflecting the varied economic and political interests in European capitals.
The budget discipline that Brussels, urged on by Germany and other northern nations, tries to impose on member governments as a condition of membership in the euro currency, is fraying as calls grow, especially from poorer southern countries, to move away from austerity policies after years of lackluster growth. And then there is the proposed trade deal with Canada, a centerpiece of European Union policy, which is being blocked by the French-speaking Walloons of Belgium. Via nytimes.com
Online sales ride high following Brexit result, amid warnings the effect could be short-term
Online sales rose by 16% in September, taking quarterly ecommerce growth in ecommerce to 17% in the wake of the Brexit vote in June’s EU Referendum, IMRG figures suggest.
The rise in the third quarter of 2016, detected by the IMRG Capgemini eRetail Sales Index, was the highest seen in any quarter since the first three months of 2014. The figures suggest a boost to online shopping after sterling fell in value following the vote.
Justin Opie, managing director, at IMRG, said: “The growth for Q3 2016 was the strongest quarterly growth we have recorded in two-and-a-half years – although it was building on a lower base of 9.6% during the same period last year. Nonetheless, online sales growth post-Brexit has remained strong – this may in part have been driven by increases in international shoppers buying from retailers’ .co.uk sites, so they can pay in sterling and get maximum benefit from the sharp shifts in currency we have seen over the past few months.”
But it comes amid warnings that this may prove to be a purely short-term effect. Via internetretailing.net
Business confidence up, but Brexit concern remains
Business confidence rose during the third quarter, however, Brexit remains the biggest concern for SMEs – especially for companies operating in the exports sector – according to a new survey.
The latest ISME Quarterly Business Trends Survey, conducted in the last week of September, shows business confidence in the retail sector is back into positive territory at 18%, and business expectations are also up at 29% from 18% in the last quarter.
Current employment levels have also risen, while firms are optimistic about future employment. However, ISME’s figures also indicate economic uncertainty is at 31% among retailers, replacing Brexit as the biggest concern among retailers, but Brexit follows in at second at 19%.
Meanwhile, 49% of SMEs in the export sector expect negative effects on profits as a result of Brexit. 19% of manufacturers also see Brexit as the biggest threat to their business. Via rte.ie
Brexit: British company moves HQ to Europe after 122 years of trading in UK, says it ‘can’t afford to wait’ for Article 50
A major Lincolnshire employer has announced it is moving its headquarters to Europe as a direct result of the Brexit vote in June.
Anxiety over the cost of a hard Brexit, which would see the UK drifting away from cooperation with the rest of the EU, has compelled Smiffys to open a new headquarters in the Netherlands.
Elliott Peckett, director of Smiffys, said 40 per cent of the company sales go to the European Union, its largest trading partner, and he needs to be prudent.
Mr Peckett told The Independent: “The Government proclaim that they want to encourage Britain to export, but pursuing this hard Brexit approach has simply pulled the chair from beneath us and left us dangling. The simple answer is that we cannot afford to wait. Via independent.co.uk
Retailers face Brexit reality of rising costs
The reality of an impending hike in shop prices hit home this week, as experts warned it may be the only way for retailers to offset rising costs. Sterling has fallen by nearly 20% against the dollar since the Brexit vote in June, leading to soaring import costs. Many businesses have hedged their currencies, but these arrangements will begin to wind down early next year.
Yet retailers are reluctant to pass on price increases to consumers, amid fierce competition for spend. BRC chairman Richard Baker has warned that shop price increases are inevitable, “probably focused in the first half of next year”.
The managing director of one high street retailer told Drapers: “We’re at the value end of the market so we’ll do everything we can to prevent putting prices up. But if we do have to, we may keep entry prices at the same level but look at the mid-to-upper tiers.” Via drapersonline.com
BRC lays out its plans to ensure the best possible Brexit for retailers
Baker outlined the campaign’s three key points to the country’s most influential decision makers.
Firstly, a focus on keeping prices low for consumers in the wake of tariff changes. This included both ensuring new tariffs were not damagingly expensive and seeking new opportunities for improved tariffs.
Next was to ensure that the government understood the challenges they were putting upon the retail industry, and ensuring no unnecessary regulations or new laws put more strain on the already-pressurised industry.
Finally, Baker laid out the BRC’s plans to lobby for a fair deal for EU colleagues, referring to the estimated 200,000 EU workforce that contributes to the retail industry whose security in this country could be at stake. Via retailgazette.co.uk
Mark Carney weighs in on post-Brexit food hikes
Bank of England governor Mark Carney has warned that sterling’s slump following the EU referendum will cause an inflation rise on some products, starting with food.
Carney said grocery prices would be the first to increase, with goods and services experiencing higher inflation over the next “few years”.
While Carney made it clear that sterling’s fall “helps the economy adjust”, he said it was “going to get difficult as we move from no inflation to some inflation”. Via retail-week.com
Brexit’s Toll Starts to Show in Prices of Consumer Goods
The price of Brexit is starting to catch up to consumers here.
The June vote by Britain to leave the European Union triggered a steep drop in the British pound, putting foreign companies and importers—including electronics manufacturers, clothing retailers and car makers—in a bind: Do they raise prices in Britain to compensate for the falling value of sterling-denominated sales? Or do they hold tight, protecting market share at the expense of profit?
In recent days, many of them have decided on price increases. Others are warning higher prices are on the way. U.S. and Asian electronics makers, whose component costs are typically in currencies like the dollar and yen, both of which have risen strongly against the pound, have been among the first to move. The pound is currently down more than 10% against the dollar since the June 23 vote. Via wsj.com
Clegg warns of ‘crippling’ rises in wine prices post Brexit
Former deputy prime minister Nick Clegg has warned that consumers face “crippling” rises in wine prices if the UK leaves the EU without a trade deal. As reported by The Mirror, Clegg warned that the war with Tesco and Unilever over the price of Marmite last week was just the “tip of the iceberg”.
Clegg is due to publish a report warning that crippling trade tariffs could see the price of wine rise by up to 14% if we leave the Single Market. And it’s not only wine lovers who are set to be affected by Brexit – the price of exported beef could rise by 59%, cheese by 40% and chocolate by 38%.
“A hard Brexit will lead us off a cliff edge towards higher food prices, with a triple whammy of punishing tariffs, customs checks and workforce shortages,” Clegg said. Via thedrinksbusiness.com
UK SMEs that invest in exporting and e-commerce are most confident of future growth
Capital Economics’ new SME Growth Tracker has indicated that the majority of British SMEs expect to grow revenue and jobs over the coming 12 months, with those investing in exporting and e-commerce more confident about their business prospects and anticipating faster growth than those businesses that do not.
The new report was commissioned by Enterprise Nation and Amazon UK, based on a YouGov survey of more than 1,000 British SMEs.
Mark Pragnell, Chief Project Economist, Capital Economics, commented: “Most small businesses are saying they expect to grow revenue in the coming twelve months, particularly those in manufacturing, financial services and professionals services. Via postandparcel.info
Fleeing Brexit to Berlin? Beware red tape, startups say
Two London-based companies are among those who have already taken the plunge. Their experience highlights the attractions of the German capital but also the bureaucracy that lurks behind the marketing, a factor in the global tussle for business unleashed by the Brexit vote.
Web-design company MBJ London and real-estate investment platform Brickvest, both co-run by Germans, had already planned to open offices in Berlin but were jolted into speeding up their investments by Britons’ June 23 decision.
The motivation: to limit their London exposure in case of a “hard Brexit” – where Britain loses access to the single market. The two firms cite access to talent and the low cost of living among Berlin’s benefits, as well as a hotline to help start-ups get employee visas. Via reuters.com
A Fashion Tech Giant Makes a Commitment to London
Given that climate, an announcement this week from the Yoox Net-a-Porter Group about plans to centralize its Britain-based technology operations in the BBC’s former headquarters in West London has been a welcome vote of confidence.
Yoox Net-a-Porter, a British-Italian company, said on Monday that it planned to accommodate about 600 staff members in its new technology hub by March, taking two floors — about 70,000 square feet of state-of-the-art (and expensive) office space — in the new MediaWorks building at White City Place. That represents a 20 percent increase in the size of the group’s technology team, which the company says will have as many as 1,000 employees in Britain and Italy.
Although a majority of London’s technology headquarters are in the east of the city, Alex Alexander, chief information officer of Yoox Net-a-Porter, said the company wished to stay in the west to be close to its other operational base, above the Westfield shopping center. Other big names in the local creative sphere said to be setting up offices in the White City development include the fashion label Stella McCartney and the Royal College of Art. Via nytimes.com
The US #1 retail e-commerce market for British retailers
The US is the most important retail e-commerce market for British retailers, according to a new report by cross-border e-commerce specialist, Global-e. After surveying 250 retail decision-makers in the UK, 59 per cent said they consider the US as the number one market for them. The funny thing is – less than half (44 per cent) are currently selling to shoppers across the pond, and just 13 per cent are planning to do so.
Global-e says there are a couple of reasons why the US is so popular. First – it is one of the largest, and most sophisticated e-commerce markets in the world. Then, there’s this new bill handling taxes, which made it ‘considerably’ cheaper and in most cases tax-free, for US shoppers to buy things from foreign merchants online. And finally, Brexit has weakened the pound, and the dollar is performing very well against other currencies.
“Now is an opportune time for British retailers to do business in the United States. US consumers’ appetite for cross-border shopping is growing rapidly,” said Nir Debbi CMO and co-founder of Global-e. Via itproportal.com
A paper circulated at a meeting of the UK government’s special Brexit cabinet committee warned that a “hard Brexit” withdrawal from the European Union’s (EU) customs union could lead to a significant fall in GDP and customs clearance hold-ups in UK ports.
The paper highlighted that ports like Dover and Holyhead – which handle large volumes of road freight – could be subject to significant disruption.
Brexit advocates within the logistics sector acknowledge that the withdrawal will lead to customs clearance issues – but they claim that these can be alleviated significantly by the application of new technologies and more streamlined procedures. Via postandparcel.info
Brexit bust or just a bad memory?
We’ll keep a close watch on Brexit impact so stay tuned. Enjoy your weekend!