Our poll of UK consumers shows firms will have a difficult task maintaining consumer spending if Brexit talks end in no deal says James Stewart.
For a country where consumer spending accounts for about 65% of GDP, KPMG’s latest poll on what a no-deal Brexit means for consumers is a serious wake-up call for the British economy and its businesses.
In a survey of 3,044 people our poll found that 54% expect the UK to leave the EU without a deal in seven months’ time, while only 20% believe that scenario is likely to be avoided.
“So what?” some would say. What the public think about the state of negotiations is far less important than Theresa May’s, Michel Barnier’s or Angela Merkel’s view of things – it will be their decision ultimately.
Except that what the public think about no deal Brexit is a very big deal economically. Whether or not the man or and woman in the street are correct in their scepticism about a deal is irrelevant from an economic perspective. If people believe a no-deal Brexit is likely, confidence will take a knock and along with it, spending.
The poll found that 43% of the public would be likely or very likely to cut everyday spending; 47% would delay major purchases; and 48% would cut luxury spending. Overall, 69% say they would change their buying behaviour. If they are already of that mind, and they believe today that a deal is less likely than not, then it would be logical to assume consumers will already be tightening their belts. The BRC - KPMG Retail Sales Monitor for July confirms that when it comes to non-food sales, consumers are cutting back on larger discretionary purchases in particular.
I happen to believe that the chances of falling off a cliff are very small simply because the social, political and economic fallout would be too damaging for either side to contemplate. So whatever happens, lights will stay on and planes will keep flying. However, that is not the public perception right now and as we know, perception trumps reality.
The implications for UK Plc, with businesses already in full Christmas planning mode, are not good. More and more clients are telling me their biggest concern is not Brexit itself and the complications that may come with it, but the impact it is having on consumer confidence and therefore the general economy. It will be interesting to see whether the first tranche of the UK Government’s ‘no-deal notices’, out today, will do more to reassure or just add to a general atmosphere of concern.
While a few companies are publicly urging progress in talks and warning of what happens if they fail, for most companies the focus of planning for a no-deal Brexit is largely operational: making sure contracts are valid, supply chains robust or staffing secure.
This survey points to other areas that need attention.
The first (and so less-understood) point is that Brexit planning is not only a question of the Tax, Logistics, Legal or Treasury teams to keep operations going, it is also up to Sales and Marketing to keep the tills ringing.
Sales teams should clearly identify which products and lines are their big earners and make sure these (above any others) reach customers. Marketing teams need to communicate why products and prices might be changing. And both can work with Finance to help with payment terms or special offers so customers can bridge this potentially lean period.
The second front is to prepare for short-term disruption to revenues, not just supply chains. The impact of no deal might last a matter of a few weeks or months, but that downturn could be terminal for a company with a poor cash position and without ready access to credit. Companies importing finished or intermediate products would likely be further stretched by a weaker pound pushing up the price of those goods. Now is a good time to look for extra ways to free up cash flow (could you delay that capital intensive project, cut back discretionary spending or look at your payment terms to suppliers?). Have you done sufficient demand forecasting so you are not overstocking unnecessarily? And have you had conversations with your lender community to extend credit facilities?
If this scene makes for difficult viewing, what may soften the impact is the knowledge that consumers seem psychologically prepared for what could be coming. When we asked respondents, whether they would vote the same way today, the vast majority of Leave voters (89%) said they would. That despite most acknowledging the likelihood of price rises, delays at ports and the devaluation of the pound. It seems many consumers are prepared to endure what could be short term pain, for what they hope to be long term gain.
You can read the full set of results here.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK. You can register for the email subscription list of this column and expert views from our Brexit leaders.