UK GDP down, European future in question – should it matter to procurement executives?

Two big UK political and economic talking points in the UK last week were the announcement of 2012 fourth quarter GDP (gross domestic product) figures, and Prime Minister David Cameron’s speech on Europe. Both have implications for the procurement community as well.

The GDP data showed the economy declining by 0.3% in the last three months of 2012 as we moved out of the very short lived Olympic “boom” which boosted Q3 figures. Two quarters of GDP decline in a row technically defines a recession. So with the snow and bad weather (by UK standards) we’ve had this month so far probably depressing industrial production and spending , it looks very likely that this quarter will also be poor, leading to the dreaded “triple-dip” recession!

Cameron’s speech was much better received by the media and commentators initially than he could have hoped for, although further consideration seems to be leading to a more mixed view. He has promised the British people the chance to vote in an “in / out” referendum on EU membership in 2017 (obviously if his party is in power then). Before then, negotiations will take place to see if the UK can obtain some of the changes and concessions that Cameron would like to see.

Three quick points for procurement to note now.

Firstly, the continued economic weakness in the UK will lead to companies looking at their own forecasts and projections, to see if they need adjusting, with obvious potential consequences for procurement. Obviously, professionals need to keep close to this process to see what likely knock on effects there may be on purchase volumes, stock levels and so on. And the weakness of the pound must be causing a few furrowed brows as well. Whilst it helps UK exporters, it will make many raw materials and components sourced internationally more expensive.

Secondly, if Cameron does win the next election, I guess we’ll be writing a lot about the possible effects on business and procurement of the UK leaving the EU! But we'll leave that till 2015 I think.

Finally, the way Cameron has positioned this puts him in an interesting negotiating position when he does seek the changes he wants from other EU members. We’ll come back and discuss that issue at greater length shortly, but let’s just say he may be in a better position than many think at the moment, and he may have improved his negotiating position compared to where it was a few weeks ago.

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