On 23rd June, a majority of Britons voted to leave the European Union. A significant 72.2% of the electorate turned out – and 51.9% of them opted for Brexit. This somewhat unexpected outcome caused the pound to plummet, and saw billions wiped off the stock market. The PM announced his resignation, leaving a Government divided.
While some of the dust has settled, uncertainty prevails. Article 50, the official mechanism separating the UK from the EU, can only be triggered when the Conservative Party chooses a new leader in September. Following that, the exit process is likely to take at least two years.
For now, the nation is in limbo.
Furniture News has canvassed opinions from a variety of industry sources in the wake of the referendum, and can point to several common concerns.
Perhaps the most obvious of these is consumer confidence. GfK polls prior to the referendum paint a mixed picture, with growing pessimism surrounding the general economic situation at odds with with a relatively bullish mood towards personal finances.
An interim survey released soon after reveals a more volatile situation, and the sharpest drop in confidence since the record began in 1994. Leavers were more optimistic than Remainers, and results vary depending on region and age group, but in general: 60% expect the general economic situation to worsen in the next 12 months, up from 46% in June; only 20% of consumers expect it to improve, down from 27% in June; and the proportion of people who believe prices will increase rapidly in the next 12 months has jumped from 13% to 33%.
“Our analysis suggests that in the immediate aftermath of the referendum, sectors like travel, fashion and lifestyle, home, living, DIY and grocery are particularly vulnerable to consumers cutting back their discretionary spending," says Joe Staton, GfK’s head of market dynamics. "As we’ve learnt from previous periods of uncertainty, consumers turn to well-known brands they love and trust as a guarantee of quality and value for money. Now is the time for companies to understand and respond to consumer concerns by anticipating and meeting their needs.”
Alan Hawkins, CEO of the British Independent Retailers Association (BIRA), has called for the Government to bolster consumer confidence during the interim by “laying out predictable timetables and sticking to them”. He also warned of the effect of interest rate changes, stating: “A further fall could be possible if the Bank of England becomes concerned about a developing recession, but increases could follow if inflation grows too quickly.
“That could dampen the national housing market, which might be relatively welcome in the overheating London market, but could also weaken prospects for retail sectors ranging from carpets and furniture to hardware and housewares.”
Perversely, anecdotal evidence actually suggests buying surges in the immediate aftermath, perhaps driven by a jubilant Leave camp.
Either way, retailers will be reluctant to inflict price hikes on shoppers right now. One supplier noted that many of its stockists had endured a tough three months in the run-up to the vote – how much more pressure might the independent retail sector withstand?
"How much more pressure might the independent retail sector withstand?"
Helen Dickinson, CEO of the British Retail Consortium (BRC), comments: In order to keep prices down and to deliver the best possible choice for consumers, retailers' top priority in the short term will be to ensure the continued ease and minimum additional costs of importing EU goods into the UK for sale to customers.”
The price of imports will be dependent on the nation’s access to the Single Market – a trading community free of customs duties. Unless the UK’s relationships can be maintained in this regard, Brexit will necessitate negotiations with individual EU member states concerning issues such as trade tariffs.
Carolyn Fairbairn, director-general of the Confederation of British Industry (CBI), acknowledges that “inevitable trade-offs will be necessary” during this process.
A respondent from a multinational ecommerce trader believes that the negotiations will result in a customs clearance process for goods coming into the UK from the EU, and vice versa. He says that each product will need a customer code – an added layer of trading complexity, yet one which his company is well equipped to handle. “Only the bigger online retailers will have efficient enough IT solutions,” he says. “It’s very costly to implement it manually.
“We will have to increase prices for customers – all retailers will. If the UK is not part of the free trade zone, we will have to manage custom duties and clearance for all products – imports and exports – making UK suppliers a little less competitive.”
That said, one of the drivers of the Leave campaign was the potential for increased trade with those outside the EU. Laraine Janes, director of the January Furniture Show and Manchester Furniture Show, comments: “The furniture industry in the UK is truly global in its outlook, with a strong UK manufacturer base and a diverse range of suppliers from all over the globe – so it is not just dependent on the European trading block. A re-based pound will see UK manufacturers becoming more competitive on the global stage.”
However, many UK businesses are more reliant on imports than home-grown product, and fluctuations in currency exchange are set to have an impact that will reverberate down the supply chain.
“The sterling to dollar exchange rate is crucial,” remarks one supplier. Another business questioned is confident that prices will settle in time, but points out that the exit process itself could cause the euro to become unstable – as could the dollar as the US presidential election nears.
Helen Dickinson comments: “A prolonged fall in the value of the pound will impact import costs and ultimately consumer prices, but this will take time to feed through.”
The BFM predicts that British manufacturers could face raw material price rises of as much as 12%. MD Jackie Bazeley says: “Most raw materials are from overseas and therefore with the dollar/euro stronger against the pound there will be substantial increases.
“A number of members have reported that they will need to increase their prices between eight to 12% to accommodate the raw material increases.”
Roy Beagent, group business manager for the Minerva buying group, says: “We work with European and Far Eastern suppliers, and there will be some price increases – but we’ll try to negotiate a middle ground. Most suppliers will hold back, but if the process carries on too long they will have to put their own increases in place.” He notes that the situation could help British manufacturers, but that many of these import components and fabrics from Europe and further afield, so could be adversely affected in some way.
Many UK manufacturers employ EU nationals, particularly in their factories and delivery fleets. Carolyn Fairbairn states: “The Government must confirm that those people from the EU who are already working in the UK can stay. This reassurance must be immediate and it must be unequivocal.”
Phil Reynolds, general manager of the Furniture Industry Research Association (FIRA), remarks: “The association will work with other stakeholders within the British Furniture Confederation (BFC) to ensure the development of UK skills and knowledge to ensure that there is not a shortage of skill within the industry if restrictions are placed on the movement of workers.”
With seismic political shift comes the possible reassessment of many of the EU’s legislative rulings, from quality standards to environmental regulations.
"With seismic political shift comes the possible reassessment of many of the EU’s legislative rulings"
David Hopkins, MD of the Timber Trade Federation (TTF), warned the group’s members not to expect reversals. “The European Timber Regulation (EUTR) is now a matter of UK law – regardless of the EU initials at the front! – and is still being enforced in the UK and across the EU. Regardless of [the] vote, it is inconceivable that the UK will want to be seen to be weakening rules against illegal logging.”
The Lighting Industry Association (LIA) voiced a similar sentiment: “For the time being we are adopting a business-as-usual stance as Britain is currently still a member of the EU and EU law continues to apply to the full.”
Phil Reynolds comments: “It will all come down to what access to the Single Market is negotiated. Dependant on the access that is agreed it may well be that UK manufacturers will still have to meet European legislation such as the EU Timber Regulations and General Product Safety Regulations, as well as adopting European Standards. Alternatively, if the UK seeks wider trade agreements outside of Europe, then it may be able to look at withdrawing European legislation and standards and replacing with national versions.”
The final consideration voiced by the ecommerce trader is a two-sided matter. “A lot of online retailers operating across Europe have fiscal entities centralised in Luxemburg or Ireland,” he says. “It’s not clear if they will be able to keep the same set-up for the UK.” He points out that such a development could mean that these companies no longer enjoy a (perceivably) unfair tax advantage, but he is unsure how they will respond to the demand for structural change. Chancellor George Osborne has already outlined plans to cut Corporation Tax to encourage investor interest.
Despite the threat of inflation and instability, most of the retailers, suppliers and industry representatives quizzed express confidence in the long term. Roy Beagent remarks: “We’ve been here before, and we’ll weather it again.” Those delivering off-the-record feedback tend to agree that it is a case of ‘business as usual’ right now.
However, most would agree that eventual stability is dependent on the Government acting swiftly and decisively to dispel uncertainty – particularly given the delay to invoke Article 50.
"Eventual stability is dependent on the Government acting swiftly and decisively to dispel uncertainty"
Mark Carney, the governer of the Bank of England, has warned that the “near-term domestic risks to financial stability” are the most significant.
Helen Dickinson says: "Now that a decision has been made to leave, it is important the Government moves quickly to explain the process of disengagement from the EU. Without clarity, retailers, other businesses and hence the economy will suffer from a prolonged period of uncertainty.”
Carolyn Fairbairn summarises: “The Government should resolve publicly to ensure the preservation of an open economy. We should protect tariff and barrier-free access to the Single Market. We should protect the access business has under existing EU world trade deals. And we need to continue to attract global talent.”
Bigger questions – such as the future of the British union, and how to tackle the deep social divisions the referendum has brought to light – remain. Indeed, almost everyone questioned was unwilling to comment on the record or express their personal views due to the political sensitivity of the topic.
How will Brexit affect the UK in the long term? The simple answer is that no-one can say for certain – but the nation’s future is ready to be shaped by whatever happens next.
