UK retailers hold key talks with the government today over no-deal supply issues

Friday, 20th September 2019 09:23 - by Shant

On Thursday, top retailers in the UK met with government officials in what is being described as 'clear the air' talks oversupply issues should the UK indeed crash out of the EU without a deal next month.  While the government has been keen to insist that disruption to trade, in terms of availability of food and medicines (amongst other essentials) will be minimal, the industry takes a less optimistic view and has sought a meeting with PM to discuss concerns.  Michael Gove - the minister in charge of no-deal preparations - went on record to say that 'there will be no shortages of fresh food.  The response from the BRC (British Retail Consortium) was that this was 'categorically untrue'.  

Yet again, politics seems to be at odds with reality, and while the debate of leaving the EU at any costs seems a hot topic amongst the public at large, businesses have a clear view of the potential troubles ahead.  Leading on from this, it is the distrust of politicians which is inducing fears that this, in turn, could spark a wave of panic buying and stockpiling by the UK consumer, who has as yet, taken a relaxed view towards the impending exit, even before the latest vote to try and block a hard Brexit come the end of October.  Given the timing of the next deadline, retailers themselves have stockpiling issues as it is this time of year that stocks are increased at their respective warehouses in time for Christmas shopping.  In light of this, retailers believe that due to the timing, supplies are good for up to 2 weeks rather the 4 weeks it would usually have.

So just as we think the issue of no-deal disruption is being minimised, as per reassurances from government, fears are once again rearing their ugly head as retailers (the boots on the ground as it were) are painting a different picture.  True that there has been much work done to minimise the issues surrounding transportation and haulage, but retailers naturally remain sceptical.  Supposed progress this week in the talks between the UK and EU have been played up to some degree, but as it currently stands, there is no genuine progress in terms of Boris Johnson's team offering up a genuine alternative to the Irish backstop, which continues to be the key sticking point in getting agreement in parliament over the withdrawal agreement.  

On the data front, the latest retail sales revealed a tailing off in spending over August, with a flat month expected.  However, ex-fuel sales dipped by 0.3% while headline sales were down 0.2%.  At this stage, this is too early to determine whether non-essential spending is being impacted by the uncertainty, but as per the BoE announcement this week, the uncertainty is having an impact on some sectors of the economy.  

It is also worth noting that with the modest recovery seen in the Pound this week, one piece of data to watch is investment.  Much has been made of the continuation of investment in the UK, but this has been predicated - to some degree at least - on the level of the exchange rate.  In a global climate starved of attractive value, a lower Pound has made the UK a valuation hot spot, but we will have to see if this remains the case should Sterling continue its recovery in the coming weeks and months.  

In conclusion, given that I have been somewhat critical of the excessive bearish mood on the UK, it is worth considering the timing and degree of optimism being played out over the course of the last few weeks, and as we near crunch time, investors need to take a more cautious view on the possible outcomes ahead.  The developments in parliament just before the enforced recess gave cause to believe that there is enough opposition to a hard Brexit, but one thing is clear and that is that anything is possible and assumptions at this stage could prove futile.  While I still believe that the ultimate relationship between the UK and EU will be resolved in the coming years, there is plenty of volatility yet to negotiate.  Now is not the time to be carried away with momentum.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.