...but supply links are set to be axed
NEARLY half of European businesses expect to cut their use of UK suppliers following the Brexit vote, research reveals.
Companies on both sides of the Channel are preparing plans to break supply chains between the UK and EU and are busy seeking alternative suppliers in the event that talks fail to hammer out a post-Brexit trade deal.
Firms based on the Continent have been found to be the most advanced in their preparations.
A survey of more than 2,000 supply chain managers, conducted by the Chartered Institute of Procurement & Supply, found 45 per cent of EU businesses with UK suppliers are already seeking local replacements.
Meanwhile, 32 per cent of UK businesses with continental suppliers are actively looking for alternative British suppliers.
Almost two thirds (65 per cent) of UK businesses have seen their supply chains become more expensive as a result of the weaker pound and more than a quarter (29 per cent) are renegotiating contracts as a result.
Gerry Walsh, group chief executive of CIPS, said: ‘Brexit is likely to bring considerable costs for businesses in the UK. These costs are going to be passed on to small suppliers and eventually consumers.’
IN THE face of troubling trade statistics last week, the Federation of Small Businesses has urged the Government to keep Britain’s small firms ‘front of mind’ as it embarks on a post-Brexit trade campaign.
In the week that figures showed a widening in Britain’s trade deficit in the first quarter of this year, FSB chairman Mike Cherry said: ‘As the next Government embarks on a post- Brexit global trade drive, small businesses should be front of mind. Securing bold and ambitious free trade agreements with the EU and other priority countries will be critical to boosting UK exports, and we want to see a small business chapter in all future trade deals, dedicated to small business needs.’
Figures from t he Office for National Statistics on Thursday indicated that sterling’s sharp fall since the EU referendum did little to boost exports in March. Meanwhile, industrial output dropped by 0.5 per cent for the month, sharper than the 0.3 per cent fall predicted.
And a Global Trade Barometer survey from money transfer group World First has shown a significant slowdown in international trading, as small and medium enterprises transferred on average 17 per cent less per currency transaction in the first quarter of 2017 compared with the final one in 2016 – a fall from £48,000 to £39,000. It found 64 per cent of SMEs did not make a foreign currency transaction in Q1 2017, up more than double from 28 per cent in Q4 2016.
World First said a drop in SMEs’ confidence was compounded by currency volatility, with 30 per cent saying they felt the negative impact of exchange rate movements in the last quarter. One in five were worried about rises in inflation affecting their business and the same proportion showed concerns over a fall in consumer spending.
Jeremy Cook, chief economist at World First, said: ‘The higher costs of importing materials and squeezed margins are seeing firms pull back from international trade.’
World First data also showed the popularity of currency hedging fell by 9 per cent in Q1 as fewer forward contracts were booked. Cook said: ‘ The volatility of foreign exchange markets, combined with political and economic uncertainty, has made approaching foreign exchange with confidence even more difficult. Many SMEs seem to be burying their heads in the sand. The lack of forward planning is leaving them susceptible to shocks that could have a significant impact on their bottom line.’
Cherry added: ‘Our research has revealed huge potential to double the number of SMEs exporting, if only the right practical advice and support is put in place. We’d like to see the Government explore financial incentives, like export vouchers or export tax credits.’ On Wednesday, Kendal Nutricare, based in Kendal, Cumbria, was named business of the year at the FSB & World pay UK Business Awards and took home £12,000 and a year’s FSB membership. It took over a loss-making factory from Heinz 18 months ago and made it profitable, creating infant formulas and exporting them to China.