Prime Minister Theresa May initiated the UK’s withdrawal from the EU in March 2017, when she invoked Article 50 of the Lisbon Treaty. This put into motion an inexorable series of events that will result in the UK’s extrication from the world’s most prosperous and powerful trading bloc. For UK businesses, the long-term implications of a Brexit are far-reaching.
Recently, the GBP faltered amid declining business confidence and service sector woes. The GBP has been pounded by declining business optimism, and increased bullishness in the Eurozone.
Sharp reductions in disposable incomes
Some of the problems facing the UK economy at present are increasing prices (inflationary pressures) and declining real wages. UK consumers are having a hard time with savings, which have dropped to multi-decade lows as a percentage of annual earnings.
This has the capacity to adversely affect your businesses earning potential. The Office for National Statistics (ONS) recently reported that Britons are now setting aside just 1.7 per cent of their disposable incomes for savings purposes.
Consider that the average of the last 5 decades was approximately 10 per cent. These types of statistics are worrisome to UK businesses because it means that less money is available to purchase goods and services and to drive economic growth.
UK consumers turning to credit markets
Consumers are turning to credit in their droves. This is fueling a rise in consumer credit with borrowings upwards of £1.7 billion in May 2017. That exceeded the forecast of £1.4 billion, thanks largely to car financing, increased personal loans, and credit card debt.
Consumers have been decreasing their spending, which in turn reduced GDP growth to the lowest level of all G-7 nations – 0.2 per cent. Business confidence is also down, and this likely changes the strategies used by business owners to try and drive growth. Weak household spending continues in the UK, coupled with rising living costs and falling wages.
As a UK business owner, you will likely be watching what happens with the Bank of England. The Monetary Policy Committee (MPC) recently voted 5:3 to maintain the bank rate at 0.25 per cent. Further, the bank agreed to continue asset purchases. That there was opposition to maintaining a dovish stance on interest rates is interesting.
If the BOE decides to hike interest rates, the GBP will strengthen relative to other currencies. This will make the cost of credit more expensive, and place additional pressures on UK consumers who are already finding it difficult to save and spend.
With so much hinging on cheap credit, UK consumers may be adversely affected by rising interest rates. However, the BOE is in an undesirable situation in terms of tightening or easing. If the Bank of England raises rates, consumers will be squeezed, and this will not bode well for businesses.
Shore up your resources for the new economy
UK businesses are looking to many different options to try and safeguard their operations in uncertain economic times. Besides for careful planning in times of spending cutbacks, businesses are also taking advantage of historically low-interest rates by applying for business loans to shore up their operations in the event of a downturn.
Additional resources can be used for reinvestment in more efficient business operations. These include things like automation of routine business activity, cloud computing technology and task management software, open communication protocols, and interactive efficiency among employees.
Company departments can be streamlined to deal effectively with changing buying behaviour, with effective marketing and consumer outreach initiatives. Socially responsible behaviour is increasingly important for UK companies, now that everyone is jockeying for position in Britain post-Brexit.