Conflicting Signals from UK Economy – Be Prepared Is The Message

What is happening in the UK economy? There are contradictory indicators, that‘s for sure. Let’s start with CIPS (the Chartered Institute of Procurement and Supply) and the results of a survey published recently.  As the Independent said:

“A survey of more than 2,000 supply chain managers by the Chartered Institute of Procurement & Supply (CIPS) found 46 per cent of European (we assume they mean continental European) managers working with UK suppliers are now seeking local suppliers because of Brexit. Just under a third (32 per cent) of UK businesses who work with suppliers on the Continent are actively looking for alternative suppliers based in the UK”.

It was presented in the press as a bit doom and gloom feel to it – but new (interim) CIPS CEO Gerry Walsh put a positive spin on it.

“Diplomats either side of the table have barely decided on their negotiating principles and already supply chain managers are deep into their preparations for Brexit. Both European and British businesses will be ready to reroute their supply chains in 2019 if trade negotiations fail and are not wasting time to see what happens”.

But we do wonder however if you had asked a year ago what the result would have been – what  percentage are always looking at their supply chains and seeking local suppliers?

There is also the issue of how much it matters. One assumes that these were manufacturing firms, so we need to note that 44% of total UK exports go to the EU, and of those, almost half are now services. Take off another few percent that are thought to be “intermediate” exports (e.g. going to Rotterdam for shipment outside the EU), plus some massive specifics such as Airbus wings, the survey is looking at a smaller percentage of the total UK exports than you might imagine.

However, the data is worrying, as are the comments we’re hearing of firms being cautious about investments in the UK, and reports of banks looking to move certain functions out of London.

And yet, we also saw recent employment figures for the UK that at first sight looked very good. The overall employment rate hit a new record high of 74.8%. So any Brexit blues don‘t seem to be getting through to those numbers yet. However, real wages are on the decline again as inflation rises, which is not such good news, and the number of people on zero hours contracts and similar is increasing; Paul Mason tweeted that London minicab numbers are up 23,000 in a single year. “It’s the Uberisation of work and you’re next” he said.

There are some deep issues here, needing far more thought and analysis than we’re likely to get through the current UK election campaign. Is the UK becoming a country of low wages and insecure jobs? Or is the “gig economy” giving millions of people a new flexibility in their lives, to work when and how they want to? Some evidence suggest a majority of people on zero-hour contracts are happy with their situation, for instance.

Anyway, we’ve digressed somewhat. For procurement practitioners, we’d suggest the declining UK real wages is an issue as it may well suggest a slowdown in consumer demand this year – and it is the consumer who has sustained the UK economy positively over the last year since the Brexit vote. The probability of a downturn shortly must be increasing, so issues such as stock management and pricing strategies may need considering. We’d like to think all UK firms are also looking hard at how to grow their non-EU exports too, as well as looking at their own supply chains in case tariffs and barriers with our immediate neighbours increase in coming years.

Finally, it is worth stressing again that the EU exports more to the UK than the UK does back the other way, so everyone has plenty to lose if things do get nasty!

 

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