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Problem vs Opportunity: Interesting Times for UK Business

By Jon Sawyer on 22/11/2016 - 0 Comments

As the UK economy faces an increasingly bumpy ride in the run up to Brexit, Theresa May has described the current situation as being in "a world transformed”

We need to look out for opportunities for growth and measures to prop up a faltering economy as inflation is likely to hit in the near future, and measures to fill any trading gap with new trading arrangements with other countries. 

This may be exacerbated as Trump is shortly to take power in the USA and currently our sole representative to meet with him to date has been Nigel Farage. This is inevitably going to drive uncertainty for British Business who will face many challenges in dealing with changing market conditions. What are likely to be the impacts and how should business adapt?

The most pressing issue facing Britain is dealing with Brexit, and whilst Theresa May indicates she wants to give the UK a ‘cutting edge’, the reality is that inflation is soon likely to hit as the cost of raw materials are likely to increase.

This may hamper competitiveness that may not be countered by currency devaluation against the Euro and US dollar. Just prior to the Autumn statement, May has indicated she is likely to reduce Corporation tax to give the lowest level out of the G20 nations and stated in a speech to the CBI that “she always believes in business”. Do businesses really believe this and how much scope has she for assisting companies in Britain?

A few companies are adopting a more long term view and remain committed to Britain. Facebook has recently announced it will increase its UK team by 50% when it opens its new London HQ, and Toyota has made similar commitments. Some sectors may be more severely affected. An isolated London would be a particularly acute problem for Wall Street banks given the significant revenue they generate from EU clients. EU staff from 87 per cent of US investment banks are located in the UK, which is also home to 78 per cent of the region’s capital markets activity, according to think tank New Financial.

Morgan Stanley may move as many as 1,000 employees out of the UK, while Goldman Sachs Group and Citigroup indicated they would also shift people abroad. European banks including HSBC and Deutsche Bank said they may have to move people or activities to France and Germany. Some people may say ‘so what’! However, the relevance of this is that it will effect British business. The British economy is expected to slow next year as inflation bites.

As we now endeavour to close out on new deals with new trading partners the last thing we need is a protectionist president. Early indications from Donald Trump are that he may believe in just this approach as the US election result has been widely reported as a vote against globalisation of business. Trump has proposed a 45% tariff on Chinese imports and 35% on Mexican.

Many economists have reported that if Trump does erect trade barriers as planned the damage could be huge. With important French and German elections coming up next year, there is plenty of scope for more unpredictable outcomes. The fact that we may jump to the front of the queue with the US in negotiating new trading terms is a positive in view of the fact that the US accounts for 17% of exports of our goods and services. All that can be understood from these events is world trade is going to be increasingly uncertain. 

One thing is for sure – British business is going to have to deal with higher levels of inflation which will drive up cost of goods. However, what can British business do to mitigate all the other areas of uncertainty? Business resilience does not come down to luck (although this may help) - it comes down to getting things right and positively dealing with change. One of the key weapons business to deal with uncertainty is having a process for formal business planning and review. Is it now time to review what you do, your core competencies and USP’s, and core customers groups?

The ability to align resources, skills and competences within the team to deliver to an agreed plan is certainly going to give any business more resilience and potentially a competitive edge. The main requirement is to ensure the approach is flexible enough to deal with the challenges and opportunities as they arise. What can be done now in advance? As we roll into 2017 it is a good time to review your business plan, to look at how costs may be reduced and sales increased. Most SME’s do not export, but is it time to reconsider this?

Simon T. Bailey in his book ‘Shift Your Brilliance – Harness the Power of You’ suggests five ways to deal with uncertainty:

  1. Prepare for every possibility
  2. Be ready to accept change
  3. Channel positive thoughts
  4. Don't over think
  5. Look at the bigger picture

Embracing this approach will help you deal with uncertainty more effectively. Business planning should not be the preserve of ‘big’ business - all businesses should work from a plan. As Stephen Covey would say in his book 7 Habits of Highly Effective People, ‘start with the end in mind’.

Coming in to 2017 is it time to review what you do? Get in touch with your local advisor and start to plan how you can fly in 2017 and beyond.

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