Political Factors
Politics in the UK is surely contributing to all the uncertainty. A narrow 52% decision in favour of Brexit was followed by an early election called to strengthen the government’s position and provide a more solid mandate for impending Brexit negotiations.
The unexpected outcome resulted in a minority government unable to retain their majority. In the aftermath – and with the clock ticking – those Brexit negotiations look more difficult than ever.
The triggering of Article 50 back in March set the deadline of March 2019 to conclude negotiations with the EU.
The EU appear unified upon their insistence that significant progress must be made in three areas, before trade negotiations can begin. These three issues of citizens leave to remain, the financial arrangements or so-called ‘divorce bill’ and the Irish border may be tricky to reconcile.
We now have a complex negotiation ahead of a country that appears divided over what sort of a Brexit it wants – and doesn’t want – and the election may have just made that process harder, not easier. All in all, it makes for exactly the kind of continued uncertainty nobody wanted, but we all have to face.
“During March, the Lloyds/Markit Regional PMI showed the largest increase in average prices for goods and services in nearly six years. The result of what they describe as ‘sharply rising input costs’.”
Financial Factors
Take a step back for a moment and realise that the outlook could be substantially worse. Over the last two years, we’ve had two UK elections, a European referendum and in the US, a reality-TV star being elected to the White House.
Given that few were predicting any, never mind all of those things, would happen three years ago, the fact is that the markets have coped remarkably well.
Overall growth has been low, but it has been growth. A rate of just 1.6% in Europe, according to the Economists Intelligence Unit, but against a backdrop of both the Pound and the Euro weakening substantially against the dollar that’s not a bad result.
Financial pressures are also caused by legislation in the UK businesses face increasing costs to payroll; both the apprenticeship levy and workplace pensions kicked in on April 1st this year and Minimum and National Living wage both increased on the same date. Even schools, colleges and universities will be liable to pay what amounts to an unavoidable tax and are unlikely to derive benefit from any returned monies, since they are unlikely to run the schemes that would make them eligible.
IT costs are also on the rise, as software companies not only increase prices, but have changed the way in which they charge. In these days of monthly software licence fees organisations can no longer decide to delay upgrading to new software for 12 months to save on budgets. Now if you don’t pay, you don’t get, as software is stored in the cloud and accessed via regular monthly payments.
At the same time, inflation rises to 2.3%, above the Bank of England’s stated 2% target. In a low unemployment economy, with higher inflation, wages also rise as demand pushes up prices.
“The Bank of England further states: “Input cost growth is expected to continue to rise in the near term, placing further downward pressure on many firms’ margins. In turn, that is likely to push up inflation in coming quarters.””
Security Factors
The security outlook is complicated, as the threat of international terror, IT privacy, security and infrastructure concerns, the role of NATO, arguments over rogue states and the new threat of armed non-state actors all contribute to a precarious international mood.
The World Economic Forum’s Global Risk Reports of both 2016 and 2017 warn that the increasing globalization of commerce and industry has led organisations to become more vulnerable to global risk. Complex supply chains abound in the modern age and those of your suppliers and purchasers need to matter to you as well now, not least because Modern Slavery legislation means organisations have a responsibility to ensure their supply chains are free of human slavery or trafficking.
The assumption that the economic, social and political progress that identified the 25 years after the cold war will continue is being challenged. Most organisations will rely on complex international supply chains, either directly or at once removed and not having a footprint in a particular territory where there is enhanced risk is no guarantee of remaining ultimately unaffected.
In the UK, the main concern was the risk of an asset bubble – or more specifically the risk that an asset bubble – will make the threat of a sudden collapse – or the bubble bursting more likely.
The WE Forum 2016 report underlines that whilst globalisation is not brand new, the issue of the risks associated with it are far from understood. Overseas investment has increased 25-fold since 1980 and this has internationalised everything.
“The WE Forum warn that: “The resilience of any individual business depends heavily on the resilience of its suppliers and purchasers, whose supply chains can span many countries.””
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