The economy of the United Kingdom has been operating on an alert mode with all the industries developing contingency plans ahead of a plausible hard Brexit.
As per the recent reports, the uncertainty prevailing in the market has propelled the British firms to stockpile in anticipation of contracting and unreliable trading conditions in the near future. As a result, they are incurring high costs to cover the rising storage of raw materials and finished products. If the country leaves the bloc without a deal in place, it will be imperative to mitigate the shortages and delays in operations.
Businesses, especially in the retail, transport, power and manufacturing sector have been building up cash reserves and taking out working capital loans to cover these additional costs as the UK moves closer to the divorce with the European Union. According to the spanish multinational commercial bank, Santander Group, the manufacturing clients have been keeping capital and retrenching out of spending on day to day operations or expansion strategies given a weaker economic perspective. The banks, as they claim, are in fact assisting the clients in management of their cash flows, engaging in safer investment options and explore new potential international export destinations to thrive locally and on a global scale.
In addition, the Bank of England’s survey of UK credit for Q4 2018, revealed that the demand for inventory finance, wherein stocks are backed by loans, was at a staggering high in three years. Overall, the borrowing from manufacturers alone increased by 7% to EUR18 billion in November 2018.
The survey also suggests that there has been an overall decline in demand for corporate lending from smaller businesses in Q4 2018, and forecast projects a further decrease in Q1 2019. For medium Private Non-Financial Corporations (PNFCs), the figures indicate a slight increase in the demand for lending, but this was again expected to fall in the Q1 2019. Similarly, the demand for corporate lending from large PNFCs has also gone down in Q4 2018 and was expected to further diminish significantly in Q1 2019. Thus, a very grim phase for corporate lending is being caused by political disharmony.
Evidently, manufacturers across various sectors specifically seem to be taking more precautionary measures due to complex supply chains. According to another survey conducted by EEF, the manufacturing lobby group, 60% of the companies were strategizing to increase stockpile in case of meagre supplies while some have already been doing so.
Not only the private firms, even the Ministry of Defence has been stockpiling food, fuel, spare parts, ammunition at UK Military bases to stay resourceful for a range of scenarios should the two units fail to reach a mutual consensus. The government has forward purchased various goods to ensure continued functioning in case of any disruptions.
The final few weeks to the resolution of negotiations with the European Union are proving to be turbulent. So far, with the Prime Minister’s significant vote down at the Parliament, the chances of a no deal exit has increased sufficiently and thus a likely scenario for consideration. Therefore, it is legit for all the stakeholders to figure out measures to sustain the blow if the talks go downhill.
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