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I am reluctant to contribute to the economic and political shambles caused by the UK’s decision to opt for Brexit. Many other people have said it a lot better than I can. Instead, I’ll just confine myself to looking at the effects of sterling’s swift decline against the dollar, falling to a 31 year low this month. Despite what some might say about the reduction in the value of sterling being a boon for exporters, it’s not really a cause for rejoicing for most IT distributors, channel partners and their customers.
With so much of the technology we sell and support (hardware and software) being produced by companies outside the UK and nearly all of it priced in dollars or euros, the consequences of the pound’s precipitous slide is inevitably higher prices for UK businesses and customers.
The BBC is already reporting that Dell and OnePlus have raised their prices in response to Brexit. Dell has imposed a 10% price increase. They are unlikely to be the only IT businesses raising their prices. With some economists predicting sterling could potentially fall to near parity with the dollar, there is a very real danger of significant price hikes in the not so distant future.
Can UK industry afford to pay them? In many respects, it doesn’t really have a choice. There are few, if any, homegrown alternatives to turn to. Even if there were, any UK hardware companies would still need to import components manufactured in factories that base their pricing on the US dollar.
Unless things settle down, this could mean hefty price increases for IT infrastructure in the UK. Ah, yes, but what about our exporters? They will be busy undercutting their European and global rivals thanks to sterling’s newfound “competitiveness” against other currencies. True, but what exactly are we exporting in IT? And who is doing the exporting? How many channel businesses are exporters from the UK? How many of those that are exporters will make enough from exports to balance the greater costs they have to bear from imports into their home market?
The UK is a net importer. The most recent figures, for May 2016, show imports exceeded exports by £12.7bn. It’s possible there will be a decrease in imports and an increase in exports as a result of sterling’s decline, assuming Brexit does not result in higher costs in exporting to EU countries because of the imposition of tariffs that do not exist while the UK remains a part of the single market. But will that trend be reflected in the IT sector?
With “the march of the makers” having long turned into a limp crawl, the UK is heavily reliant on services, so access to the EU’s single market for services is of great importance. Services account for 70% of the EU’s GDP and its employment. The core principles of the EU’s single market for services are “the freedom to establish a company in another EU country” and “the freedom to provide or receive services in an EU country other than the one where the company or consumer is established”.
The services directive, implemented in 2009 but still to be completed, is intended to remove red tape and simplify the establishment of service providers in their home country and abroad, simplify the cross-border provision of services into other EU countries, strengthen the rights of service recipients, in particular consumers, and ensure easier access to a wider range of services.
Brexit would, needless to say, restrict UK companies’ access to that market, a serious inconvenience to the country’s capabilities as an exporter of services – and to the ambitions of any IT businesses seeking to expand their services operations to the continent.
Right now, the uncertainty created by the Brexit vote is being amplified by the lack of any real political impetus to do anything about it. Perhaps they believe the UK and EU can continue with business as usual as they drag out the process of parting. But the current currency convulsions suggest there is no such thing as “business as usual” anymore. It really is a mess.