The first quarter GDP figure for the UK stood at 0.3% growth. This compares to 0.7% growth in the last quarter of 2016. The Bank of England had expected the figure to be 0.6% so the fall is significant. In France growth also stood at 0.3% while Spain stood at 0.8% both above forecast, whereas the US came in below forecast at 0.7%. It is likely that there are stormy waters ahead according to most economic forecasts. Disruption is a reality for modern business in the normal course of operating. However, the UK has added to its own uncertainties and increased risk following the BREXIT vote in June 2016. Here I outline some of the factors that will add to uncertainty in the months ahead and identify some likely supply chain winners and losers.
Higher inflation is expected at 3% or above by the end of 2017 (Bank of England forecast 2% for 2017), the volatility of UK currency and the decline in consumer purchasing will all have an impact on the British Economy in the months ahead. The period of instability is likely to last for the medium term as the trade terms of BREXIT are negotiated between the current EU members, the rest of the world and the United Kingdom. Nevertheless, some sectors are doing better than others so the picture is not necessarily negative. In manufacturing, textiles, machinery, transport, wood and pulp as well as electronics and other manufacturing the UK is doing relatively well. Food and drink shows a very small decline while other categories including rubber and plastics, electrical equipment and metals show larger falls. The biggest fall is in pharmaceuticals approaching -8%. The key for longer term prosperity will be how the mix and balance of exports and imports change the make-up of UK GDP. Sectors selling more than 30% of their output in export markets have seen a 2.6% increase in growth in the first quarter of 2017. These sectors include transport and machinery. This is not all due to a weakening pound since BREXIT. It is also due to an increase in world-wide market activity in the first quarter of 2017.
Between January 2017 and February 2017, export prices decreased by 0.5% and import prices decreased by 0.9%, with the value of sterling increasing by 0.8% in February 2017 compared with the January 2017 average. However, it remains 10.4% lower when compared with February 2016. (Source: ONS data).
In 2015, the UK recorded the largest current account deficit among the G7 economies at 5.4% of GDP. UK exports grew faster than world exports in 2015, for the first time since 2006. Within this the UK has seen increased trade activity in goods with non-EU countries, with their share exceeding that of EU countries in the last four years. Trade with non-EU countries continues to grow as a proportion of the total. The recent fall in the pound has seen some export categories increase trade while import costs have risen. There has been a slight rally in the pound against the dollar and the Euro since the announcement of a General Election on 8th June 2017. Most commentators opine this is due to the removal of some uncertainty regarding BREXIT. Although, the initial meeting between Prime Minister May and EU Commission President Jean-Claude Juncker at Downing Street did not go smoothly according to reports. It is unlikely to be plain sailing. It will be interesting to see what happens if there is a hung Parliament with no overall majority for any single party. Most people think this unlikely but who knows, opinion polls do not have a good track record when it comes to predicting the British electorate and choices they make. Opinion polls for BREXIT were not a good indicator for what actually happened. More indecision by any Government would increase uncertainty and risk for the British economy.
Table 1 shows the monthly change in volumes by category for imports and exports for both EU and Non EU countries. It shows that most export categories moved upwards apart from semi-manufactures and food to the EU. Consumer goods other than cars as well as chemicals were major exports to the rest of the worlds. Basic material imports with the EU fell while they increased by 23.4% with the rest of the world. It is possible that firms are already increasing forward purchasing to offset currency volatility but the data set is too limited to be sure. Other consumer goods from the rest of the world fell by 11.1%. Car imports rose by 14.4% from the rest of the world and by 2.2% with the EU.
|Table 1: Shows Monthly change1 in goods commodity volume, February 2017|
|EU countries||Exports % change||Imports % change||Non-EU countries||Exports % change||Imports % change|
|Food, beverages and tobacco||0.9||0.0||Food, beverages and tobacco||0.9||0.9|
|Basic materials||1.2||-3.2||Basic materials||-7.3||23.4|
|Semi-manufactured goods; of which||-0.9||0.0||Semi-manufactured goods; of which||0.0||-2.0|
|Finished manufactured goods; of which||1.6||4.7||Finished manufactured goods; of which||1.0||-2.8|
|Consumer goods other than cars||-1.6||4.0||Consumer goods other than cars||12.0||-11.1|
|Intermediate goods||-0.9||5.5||Intermediate goods||5.8||0.0|
|Capital goods||1.7||0.0||Capital goods||1.0||-0.9|
|Source: Office for National Statistics|
|1. Monthly change is February 2017 compared with January 2017.|
There will likely be a turbulent few years as trade terms across categories and countries change as result of the complexity of negotiations. Supply chains will need to readjust to new trade patterns, sourcing trends and shifting economics. This is no time for complacency. If you want to stay ahead of the curve your supply chain will need to be agile.