Swift Electrical’s commercial director Malcolm Scott reflects on the Brexit vote and reveals how companies and individuals should prepare for its impact
It was a close call, but the great British public have spoken and have voted to give up some of the economic benefits of the European Union in order to slow the pace of change that came with 40 years of incremental prosperity.
Now, as business managers, we must assess the impact of the changes and take appropriate actions to reduce the risks and ease the impact on our staff and businesses wherever possible. As individuals, we must also look at our own finances and move with the times.
We already know that, due to the fall in the value of the pound, price increases on appliances, and on most other components of the modern kitchen, have already been announced by several major suppliers, and many more will follow. Anything imported from the Far East and from Europe that is purchased in dollars or euros will now cost more.
We know that the construction sector in the South-East has also already been affected, with some building projects already ‘put into mothballs’ in the expectation that consumers will respond badly to the anticipated drop in property prices in London and its surrounding suburban towns.
While you might well be thinking ‘about time’, as property prices have continued to rise relentlessly year on year, the expectation of ever-rising house prices has produced a ‘feel-good’ factor that has generated extra big-ticket sales for years.
In the run-up to the referendum, Berkeley Homes, London’s biggest house builder, reported reservations for new homes falling by 20%. In the first day after the Brexit result, Persimmon Homes and Taylor Wimpey Homes saw over 20% wiped off the value of their shares, while Travis Perkins (Wickes) saw more than 10% wiped of their share value. RBS and Lloyds saw shares tumble by 20% in a single day.
Things are changing.
My own view is that, in economic terms, we are not looking at anything quite as bad as the banking crisis of 2008, which was a worldwide systemic failure. The UK economy, plus Europe and the euro zone, can look forward to a few years of negative growth while we regroup and consolidate. In the medium and long term, we will find a path that works for all trading partners, but there will be some tough times ahead as we create the new path. The path we make may well end up looking remarkably similar to the path that the country has just rejected. Provided some of the rhetoric of the hotheads in the debate can be toned down, we should be able to make peace with each other and with Europe and move on. The key issue now is the creation of stability by reducing uncertainty. Talk of Scottish referendums and of General Elections and finding new national leaders must be concluded quickly and must result in compromise rather than confrontation – instability is bad for business and bad for the whole country.
So what should we do now to reduce short-term risk and the impact on individual businesses? The whole industry needs to listen to the ‘wake-up call’ and pay much more attention to maintaining profits and holding margins.
Discount culture, driven by internet traders who measure their business success against increases in turnover rather than on retained profit, must be rejected. The culture of consumers expecting discounts because the market is slow must be resisted.
On a personal level, we need to accept that share prices and property prices will be subdued for some time and that this will affect the likely pension of anyone due to retire within the next 10 years and increase personal pension contributions accordingly. In our supermarkets, we must buy British-made options where possible. We need to accept that there will be no pay rises or windfall profits for a few years and adjust our spending plans accordingly.
We must also accept that while the pound is falling, the cost of overseas holidays will rise rapidly and so people may have to consider having more holidays in the UK.