Much has been said and written since the historic vote to leave the EU and while daily life continues there is still a great deal of uncertainty looking ahead.
The one thing business does not like is uncertainty. The fact that the Prime Minster resigned just added to the problem. As expected the markets reacted accordingly with the stock market taking a tumble and the pound plunging against world currencies especially the US Dollar. Thankfully the situation around the vacancy at No 10 was resolved a lot quicker than had been expected. So looking ahead what now for the UK Electronics industry.
Two questions remain, when will the UK trigger article 50 and what will come out at the end of 2 years in the negotiations. The only clue the Government have given is that nothing will happen until 2017. In the mean time the exchange rate has still not recovered with a number of pundits convinced that there will be further drops. Whilst this may be good for exporters in some sectors for the UK Electronics industry it is a double edged sword.
The majority of electronic components are priced by manufacturers in US Dollars. Due to the poor exchange rate components are going to cost more. Whilst there is some stock in the UK once that is exhausted then prices will rise. Already we are seeing increases of 20% on some products. Electronic Components Distributors already work to wafer thin margins so will have no choice but to pass on these increases.
Manufacturers of consumer electronics and computers are already reviewing their prices and some have already instigated increases. If costs increase then UK manufacturers will have two choices, raise prices or work with a smaller profit. Whilst everyone is reluctant to do the first there is a limit to how long you can work with the second. The nett result will be UK customers will pay more whilst customers around the world will end up paying what they would have done based on the price and exchange rate pre EU referendum.
Various surveys have indicated a contraction in manufacturing and this is not surprising. Already inflation has risen as the cost of imported goods is on the up and while the Bank of England reduced the base rate, they may well have to step in if inflation rises above their target. Looking ahead the signs are not good and there is a long way to the light at the end of the tunnel.
The quicker the exchange rate recovers to $1.45 the better for the UK Electronics Industry