Exporters in the UK are bracing themselves for what is an unprecedented time for all sectors. In the short to medium term future, there is likely to be a balancing act between the benefits of a precipitating pound and the inflation imposed on input prices.
This dichotomy was outlined in a recent IHS Markit purchasing manager’s index over the whole of the UK economy. For example, the manufacturing sector experienced a rise in fresh export business since the decision to leave the EU. But it was accompanied by a sharp increase in input prices, with purchase price inflation reaching a five-year high.
According to figures released in June by the International Monetary Fund (IMF), throughout last year, machinery and engines provided the highest amount of export volumes, reaching 13.9% of the UK’s total overseas sales.
JCB machinery are a prominent part of that equation and export to 150 countries, including EU member states. Company chairman Lord Anthony Bamford was one of the most prominent UK businessmen to support ‘Brexit’. He believed that this would open up trade routes for UK companies across the rest of the world, alongside building upon existing trade relationships.
After the referendum result was announced, the company said that the UK now needs to look to the future.
Lord Bamford said, “The UK is the world’s fifth largest trading nation. We, therefore, have little to fear from leaving the EU. European markets are important to many UK businesses, including JCB, and this will not change.”
The oil sector
The IMF also placed the oil industry as the fifth highest export sector in the UK for last year, with $33.2 billion worth of business, amounting to 7.2% of the total of UK exports.
Exxon Mobil Corporation is the parent company of the Esso, Mobil, and ExxonMobil companies that operate in the United Kingdom. They currently have interests in 40 oil and gas producing fields, and are responsible for 5% of the UK’s total oil and gas supply, highlighting the potential effect that Brexit could have on them.
Richard Scrase, a spokesperson for Exxon Mobil, said, “Exxon Mobil respects the democratic process. Our investment decisions are based on a wide range of factors which include, but are not limited to, the political climate. The barrier-free movement of goods, people and capital across borders is important for a business like ours with operations across Europe.”
On the flip side to Exxon Mobil’s position, Premier Oil have interests in the medium sized oil fields in the UK, but the rest of the EU is not one of their major export lanes.
In their trading update published in July, they explained that due to the sterling’s post Brexit weakness, they have managed to lock in £110 million of forward expenditure in the second half of the year at an average rate of GBR/USD $1.31. A reduction in capital expenditure and operating costs are expected if the current sterling/dollar exchange rate weakness persists, as over half of the company’s remaining 2016 capex and opex is denominated in sterling.
Exporters will have to deal with the merry go round that Brexit has caused for some time to come, until the big political decisions are made.