Following last week’s vote to leave the EU, the pound fell overnight to its lowest level since 1985. For Metal Stockholders who in the last few years have moved to importing from overseas, they are likely to see prices rise and margins eroded. We have already seen a few of suppliers who have advised they will only be invoicing existing and future contracts in the Euro. However, for businesses selling to international customers, a dip in the pound could lead to a decent uplift in demand. Longer term the shortage of supply and the exchange rate could lead to metal shortages and prices and margins rising.
As we saw following the recession, uncertainty does nothing for confidence – and ultimately investments and consumer spending. On the upside it will be critical for the UK to maintain its local steel manufacturing capacity as this will provide some buffer against supply shortages, long lead times and the potential difficulties in setting up new trade agreements Brexit may bring. The Leave team never really answered many of the questions about the situation British business would be in if we left the European Union. Metal distribution companies up and down the country will be waiting to learn more. Now that the prime minister has announced his resignation, it is key that a comprehensive plan is put in place to deal with confidence issues.
As an employer of overseas workers the metal distribution sector will need to understand what this means to their ability to recruit workers from Europe and beyond. In the short term employees from other EU countries working in Britain will likely be feeling unsure as to what their future will be. This may lead to unrest and productivity issues.
For Metal distributors who trade locally, there will likely not be much impact to the level of business done. Companies that are exposed internationally, by imports or sales may see issue ranging from Anti Dumping Tariff changes, contract price changes and the removal of trade liberalisation may make what was a simpler place deal with differing legal frameworks, customs laws and taxes by creating a common system more complicated. The UK, when in the EU was privy to global trade deals which will need to be renegotiated and quickly if Britain is to retain its export status around the world.
Trading as an intentional block means that product design, packaging, information and ingredients need to meet general EU law. We have seen this with the implementation of strategies like the CE mark. While this can be seen as a badge of honour internationally, the generalisation across such a wide and diverse set of countries has often lead to onerous compliance processes for British firms. A reduction in compliance may be off-set by having to produce new standards or resurrecting old one and the cost of documentation, marking and packaging that may bring.
Employment rights based on EU employment laws – such as TUPE, employee benefits, hiring workers from EU countries – could be repealed, throwing into question regulation for businesses. However, removing the freedom of movement EU agreement could mean an Australian-type points system and a way of better acquiring talent from around the world.
By being part of the EU, SMEs have been able to access grants, loans and guarantees – from sources including the European Regional Development Fund. We have seen this particularly in IT where EU support has allowed our clients to invest in state of the art equipment, training and software like iMetal to improve their business. The potential loss of access to this funding may slow down planned improvements in SME metal distributors.
One real concern long term is that being in the EU also means the UK has been viewed as more creditworthy. With the news that the UK has lost its top AAA credit rating from ratings agency S&P following the Brexit vote, borrowers in Britain might end up having to pay a higher price for credit and the availability of external financing and with that credit insurance ratings that already are under pressure in the metals sector may be reduced.
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