LONDON: Britain’s manufacturers are bracing for more swings in the exchange rate and rising costs, as the start of Brexit negotiations in 2017 threatens to keep the pound under pressure. Factories have had to cope with sharp rises in energy and raw material costs in recent months as the weak pound makes imports to the UK more expensive. For manufacturers that export there has been a small silver lining as the fall in the pound since the Brexit vote has made their goods cheaper to overseas buyers, but that boost has only partially offset the pressure from higher costs.
The British Chambers of Commerce (BCC) says that six months on from the EU referendum, its members in the manufacturing industry have become more worried about moves in the pound and about inflation. Its poll of 1,775 manufacturers showed 56% felt that the exchange rate was more of a concern to their business than three months ago, up from 48% in September. There was also an increase in the proportion worried about rising prices, reflecting official figures for November that showed manufacturers faced the sharpest rise in their costs for five years. The BCC survey found 26% of manufacturers now saw inflation as more of a concern, up from 21% three months ago. Suren Thiru, the BCC’s head of economics, highlighted the pressures on manufacturers from the pound’s drop since the referendum which has seen it lose its value 17% against the dollar and 10% against the euro. “While the post-referendum slump in the value of sterling is benefiting some exporters, a weak currency is something of a double-edged sword, as many UK exporters also import goods and raw materials, so will be facing higher input costs,” he said.
The business group wants more help for firms to offset the pressures from the Brexit process, which has already shown signs of slowing business investment and knocking consumer confidence. Thiru highlighted business rates, a tax that firms pay on their commercial property, as one cost that could be lowered by the government. “Uncertainty over future currency movements is also a growing concern for businesses. With further expected rises in the US interest rate in the coming months likely to place further downward pressure on sterling, it is vital that more is done to address the high input costs faced by businesses, particularly business rates.”
The economic news since the vote to leave the EU in June has generally defied gloomy predictions of a sharp slowdown from forecasters like the Bank of England and International Monetary Fund. But the most recent indicators suggest the Brexit vote is starting to be felt and that the effects will become more pronounced in 2017 when negotiations over the leaving the EU being in earnest. The latest official figures on inflation suggest the weak pound is now feeding through to prices paid by consumers, particularly for fuel. Inflation hit a two-year high of 1.2% last month and forecasters expect it to continue rising and approach 3% in 2017. The jobs market has also shown signs of strain. The pace of hiring has eased off and there has been a jump in the number of people considered “economically inactive” – out of work and not looking for work. Consumer confidence polls have pointed to growing worries about the economic outlook and about inflation in particular. Thinktanks have warned higher prices and a slowdown in wage growth will squeeze household incomes.
There have also been indications that business investment is slowing but a separate poll from the Institute of Directors (IoD) suggested firms were still willing to spend and expand in 2017. Its survey of 844 business leaders suggested they were cautiously upbeat about the year ahead. More than 60% were optimistic or very optimistic about their prospects in 2017, and the net optimism against pessimism figure, at 50%, was the highest since the vote to leave the EU in June. But business bosses also warned of a number of concerns that could see their expectations prove over-optimistic. Half felt current UK economic conditions were having a negative effect on their business’ growth, and 45% felt an uncertain trading status with the EU was holding them back. There were also worries about skills shortages amid the prospect of an immigration clampdown after Brexit.
