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.