taking the temperature continued ...
uncertainties will produce financial volatility, especially within foreign exchange.
While the weak British pound helps exporters, it hinders importers, and Tectona believes current exchange levels are “the primary reason the UK economy has not nose-dived post-Brexit.
“Movement in exchange rates of the magnitude we have seen, and in short timescales, can decimate business profit and cashflow.” People are already grappling with this very big issue, and there could be trade tariffs and quotas coming. No-one knows what the Brexit end-game will be; its costs overall to British business.
“The opportunity, arguably the responsibility, that we as financial professionals have is to make it clear to people that they should be very scared of what currency risks can do to their business, and then help them manage and overcome those risks.” *
Jon Stradling of HSBC echoed the need to support customers through this period. “UK companies cannot afford to freeze their business plans and wait for uncertainty to lift. We need businesses to be confident and ambitious around selling their products and services overseas, and new trade agreements will be critical to expanding the range of business opportunities available to UK exporters and importers.”
Highlighting Brexit’s positive momentum for exporting beyond Europe, he added: “The sharp decline of sterling against the euro and dollar has represented an immediate opportunity that many exporters have already grasped. In the longer term, however, the UK cannot depend on devaluation alone.
“The UK is a world leader in services and we expect this momentum towards businesses trading in services to continue. Technological advances, rising consumer spending and falling transportation and travel costs have hugely expanded the opportunities for trading services across borders. Brexit means the UK has a unique opportunity to evaluate how we trade services, particularly in emerging economies.”
Jonathan Hughes of Leumi ABL agreed that uncertainty would delay important decisions.
“Regardless of political persuasion, we need to treat Brexit as an opportunity. We know there will be a period of uncertainty, and considerable negotiation at government level, but Britain has significant trading relationships that should be encouraged and developed.
“While exporters are doing well, the apparent long-term realignment of exchange rates is a concern for importers who have seen purchasing costs increase 15-20%. That can’t just be absorbed, and will lead to inflationary pressure, potentially requiring an interest rate rise.”
Locally, property consultant Giles Blagden confirmed that instability concerns were delaying some occupier market decision-making on business relocations and affecting transaction volumes. “It is also reducing the number of speculative developments starting and the appetite for higher-risk investment opportunities.”
However, with lack of supply holding up rental values, there are good regional deal opportunities for those with cash or access to affordable funding streams.
FISCAL Technologies is currently just entering Europe, and Brexit will definitely affect its software sales there, said David Griffiths.
The Brexit vote has cooled some business relationships, and with FISCAL relying more on EU partners instead of direct sales, trading is likely to be harder.
Additionally, business costs will increase significantly with FISCAL having to host datacentres in Europe as well as UK.
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businessmag.co.uk Mark Nicholls
“We also have a number of Europeans working within our company and recruitment from Europe is going to be more complex and costly.”
Greater post-Brexit complexity in global supply chains will undoubtedly increase risk and costs. “But, our software solutions are about reducing both of these, so I think overall there are opportunities for us.”
And for the UK overall?
“We won’t know the outcome of negotiations for a long time, but it seems likely there will be increased tariffs that will impact European sales. And, some companies may choose to relocate from the UK at the same time as immigration becomes harder, so ‘UK plc’ may find it harder to adequately staff its companies.”
A talent drought – the risk of losing access to the best and brightest tech developers from the EU – is also the biggest concern among Chris Smith’s clients.
“Highly-qualified young people with an appetite for success and change come to the UK knowing we have a thriving start-up culture, and if this tap is turned off they will not be easily replaced.”
Unfortunately, the number of UK computer science graduates is not sufficient to fill the jobs available. “As they are inherently risky jobs there needs to be a supply of highly-educated risk-takers – something we do not produce as it’s not in our collective UK psyche.”
Smith had also heard rumours that since the Brexit vote some UK companies applying for EU ‘Horizon 2020’ research and innovation grants are being excluded from funding. “Whether the UK Government is able to fulfil its promise to ensure that UK businesses have access to grant funding remains to be seen.”
Similarly, filling low-paid jobs previously undertaken by immigrants could become difficult.
While investors in his sector might want to await the Brexit impact, investment in UK businesses is now cheaper for US and Asian funds and trade buyers, Smith pointed out. The UK investment sector would also be pleased to break free from EU regulations surrounding Venture Capital Trust funds.
On the UK’s future, he added: “We now live in a global society, and stepping backwards will not be good for the UK or its economy.”
THE BUSINESS MAGAZINE – THAMES VALLEY – APRIL 2017
Jonathan Hughes
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