A Continuing Slump in the Supply Chain Funding index (SCFi) Is a Real Concern for the Growth And Productivity of British Businesses

The URICA Supply Chain Funding index fell to 6.2 in February compared to 6.6 in October 2016. At first sight it is difficult to reconcile the softening in the data with the ongoing strength of the UK economy in the final quarter of 2016 and into the first quarter of 2017. However, it is clear from within the survey results concerns about Brexit and the vagaries of Sterling are causing concern.

As Article 50 negotiations get under way, the fear is that further disruption in supply chain funding may push the headline index still lower. Anxieties about the outcome of any EU trade deal and continued Sterling volatility may continue into 2017. A further slump in the index towards 5.5 would be a real cause for concern for the welfare of SMEs in the UK and the capacity to capitalise on the export opportunities a truly global Britain may present.

Payment Term Pressures in Supply Chains

Firms at middle and lower end of the supply chain continue to bear the brunt of any payment squeeze. The construction sector is the most vulnerable to payment pressures along with engineering and maintenance. It is interesting to note the strength of the supply chain network in the vehicle business. This augurs well, perhaps, for any trade distortions post Brexit

Rising inflation and a slowdown in consumer spending may be impacting on sentiment in the survey. Manufacturing output prices increased by 3.7% in February, as input costs increased by just over 19%. The pressure on energy and commodity prices continues, given the recovery in world trade and the weakness of Sterling. Inflation CPI basis increased to 2.3% in the month.

The Impact of Brexit And Low Pound

In the survey data business expressed concern about the uncertainty surrounding Brexit and the vagaries of currency. 45% of business claimed Brexit would have a negative effect on business compared to just 14% who considered this would have a positive impact.

On currency, 52% considered a falling pound would be bad for business, just 20% thought a falling pound would be good for business. On the other hand, 43% considered a rising pound would have a positive impact on business and 21% considered a rising pound would be bad for business. The reality of business response is at odds with conventional economic theory.

Business Predict Export Growth

The number of firms exporting has increased from 49% to 51% in the February survey. It is expected to rise to 55% over the next twelve months. Overall two thirds of businesses expect to see an increase in turnover over the forecast period. Despite the slowdown in the Supply Chain Funding index, businesses are optimistic about the year ahead.

The URICA survey makes clear once again:” Improvement in funding would lead to greater liquidity which would improve the prospects for employment and investment”. We continue to believe a 10% improvement in supply chain funding would lead to a 3% increase in growth and productivity. The Supply Chain Funding index has once again provided good insights on how this can be achieved.

Economics Professor John Ashcroft

AUTHOR

Dr John Ashcroft PhD BSC.(Econ) FRSA CBIM

John Ashcroft is an experienced businessman and business economist offering a pragmatic approach to economic analysis and forecasting. He is author of The Saturday Economist and was recently ranked by CityAM as one of the top ten most influential economists in the UK and Ireland.

Economics Professor John Ashcroft

About the Author
Dr John Ashcroft PhD BSC.(Econ) FRSA CBIM

John Ashcroft is an experienced businessman and business economist offering a pragmatic approach to economic analysis and forecasting. He is author of The Saturday Economist and was recently ranked by CityAM as one of the top ten most influential economists in the UK and Ireland.

John is a visiting Professor at MMU Business School, specialising in Economics, Strategy and Social Media and is an occasional lecturer at Manchester Business School.

Educated at the London School of Economics, London Business School and with a PhD in Economics from Manchester Metropolitan University, John is a fellow of the Royal Society of Arts, a companion of the British Institute of Management and a member of the Society of Business Economists.

John Ashcroft is Chief Executive of pro.manchester and a member of the (AGMA) Business Leadership Council. John has served as a director of Marketing Manchester and Chief Economist at the Greater Manchester Chamber of Commerce at some stage, over the last five years.

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