It is not just the electronic components sector (articles passim) which is seeing changes to its supply chain according to new research. Whilst components are certainly seeing some industry specific changes to their landscape: a far wider range of sectors is being pummelled by the general economic landscape of both the UK and the world as a whole.
Inflation rising to 2.3% in March (its highest since September 2013, having risen steadily since late 2015): it is no real surprise that an impact is being felt by businesses across the economy.
Weakening sterling has further exacerbated this effect, both directly and indirectly. Whilst a noticable post- Election announcement 'bump' has occurred, sterling is still, fundamentally, trading at a multi-year low. Depending upon a multitude of factors, the next few years (and beyond!) look to be very bumpy indeed.
An increased minimum wage (up 4% to £7.50/hour) and the looming impact of the apprenticeship levy (a seemingly innocuous 0.5%) have both acted to creature further pressure on employers in high-employment, lower-margin industries. The potential impact of changes to free movement of labour will similarly be having an effect on the ability of businesses to plan forward adequately.
All this uncertainty (and the inability to pass on costs as much as might previously have been the case) has had an effect on the confidence of purchasing managers. Whist the PMI has recovered steadily since the referendum announcement last year, it now looks to have stabilised in the low 50s in what looks distinctly like the very cautious optimism of 'lets put things off for a while, wait and see' mentality.
As with so many aspects of business and economics (both micro and macro), the largest underlying driver for these trends would seem to be not fear of specific occurrences, but the abstract fear of uncertainty that currently pervades much of British politics and industry. Buttonwood in the latest edition of the Economist illustrates this point succinctly in his analysis of certainty and business confidence in Turkey.
With the ramifications of Brexit still unclear, further financial turmoil within the Eurozone, and both local and general elections at home and abroad hoving in to view, we fear that this uncertainty shows no sign of abating in the near future.
As far as the M&A market is concerned, we would not be surprised to see continued uncertainty leading to further consolidations within a whole range of markets as margin-pressurised firms sniff around for synergies to realise, as well as positioning for increased market share in an increasingly globalised market with less entrenched customer loyalty. With the cost of finance still low, historically speaking, the aforementioned weak sterling making UK firms much cheaper in $ terms than a year ago and both UK and foreign firms considering the need for new regional hubs in a post-Brexit economy: we watch this space with interest.
"As we wait to see what a future UK trade agreement with Europe might look like, these suppliers face continued uncertainty, not just in terms of their European distribution channels but also with regards to staffing, given their higher reliance on European migrant workers."