THE XMAS HOLIDAYS. AN ESCAPE FROM BREXIT?
It’s Xmas and Parliament has thankfully given us a break from Brexit! Hooray!
So Why Are We Posting About Brexit?
The holiday season allows businesses some time to plan the forthcoming calendar year. Unfortunately, the biggest challenge for UK businesses in 2019 will be the B word. Over 50% of businesses have done little or no Brexit planning.
Fine but I don’t care as it won’t affect me?
Basically, Brexit will have two types of impact. Simplistically, there will be primary impacts and secondary impacts. Thus, If you are not affected by the former you will be impacted by the latter.
How will Primary Effects affect me?
Primary effects include the following:-
- Exchange rate effects
- Interest rate changes
- General inflation impacts
- Labour market changes
- Cash flow issues as bank liquidity changes
- Disruption to supplies at key ports
- New tariff and no tariff structures
Subsequently, any business that trades with credit facilities may thus be impacted. Fortunately, the Bank of England has contingency plans in place for most scenarios.
For example, in the event of a no deal it is quite possible that interest rates may actually go down. This will be an attempt to cushion wider negative impacts.
Focusing on credit facilities, in the event of a No Deal it is anticipated that bank lending may be reduced at least for the short term. Supposedly, this may be a function of lenders taking time to adjust and possibly some lenders being initially locked out of the UK market.
Furthermore, some industries such as the fashion industry will suffer additional direct effects. Unfortunately, as this industry imports materials and relies on low skilled migrant labour it has a real exposure. Sunsequently, in the event of a no deal scenario the change in tariff structures inter twinned with the anticipated drop in exchange rate could increase the costs of manufacture by 12-15%. This could be fatal to some businesses working on tighter margins.
So What About Secondary Effects?
Additionally, secondary impacts include the following:-
- Labour shortages
- increasing wage costs
- Increase in overhead costs
- Supply chain problems
- Drop in demand
- Increase in logistics costs
- Less support for research and development expenditure
So whilst most UK businesses technically do not import and export directly they may also be affected.
For instance, some of their supply chain may import. In addition, a lot of office consumables e.g. paper and office equipment is imported.
Furthermore, most of our technology and IT is imported for example all mobile handsets are imported and thus will increase in cost.
Equally, oil is priced in dollars and thus petrol and diesel at the pump will increase.
So what should I do?
The most obvious answer to this question is to develop a plan.
Consider where your exposure to Brexit is and what aspects of your business it will affect?
What is the likely impact on your sales, costs, supply chain, workforce and funding?
Consider ways of mitigating these effects. For example talk to your bank in advance and determine what flexibility there is available.
Furthermore, develop a dialogue with your supply chain and stakeholders to determine where your risk exposure is greatest.
Consider collaborative solutions with partners to offset the worst effects. Engage with your supply chain.
Engage with your staff and stakeholders. Additionally, think about apprenticeships to safeguard your labour force.
We can help you with this planning and can work with you to develop and implement Brexit solutions.
Alternatively, you can continue to sit there with your head in the sand.