Mitigating Post-Brexit Price Increases

7 years ago

Figures released by the ONS make worrying reading for those within industry who are responsible for protecting profit margins and controlling costs.

The price of goods bought and sold by UK manufacturers, as estimated by the Producer Price Index (PPI), rose in the year to July 2016 following 2 years of decline.

The overall price of materials and fuels bought by UK manufacturers for processing (total input prices) rose 4.3% in the year to July 2016, compared with a fall of 0.5% in the year to June 2016.

Perhaps this should be no great surprise given the current position of sterling, impacting those companies who rely on importing materials. Against the dollar, the pound is some 13% below its level in the run-up to the EU referendum and 10% lower against the euro.

“The Producer Prices Index suggests the fall in the exchange rate is beginning to push up import prices faced by manufacturers". Mike Prestwood, Head of Prices at the ONS.

Meanwhile, output prices have also jumped since the Brexit vote, with factory gate inflation rising by 0.3% in the year to July 2016, compared with a fall of 0.2% in the year to June 2016 - the first annual increase since June 2014. The factory gate price (output price) is the price of goods sold by UK manufacturers and is the actual cost of manufacturing goods before any additional charges are added.

Wherever your business sits within the supply chain, this upward pressure on pricing is likely to impact on costs and potentially erode your profit margins.

So, what to do?

It would seem to us that the minimum any company should be doing when facing these economic headwinds is to have a well-structured and coherent programme of procurement activity. Now more than ever, the importance of understanding spend and being on the front-foot in supplier negotiations is paramount.

At Ivo, we are currently working with clients to help them identify, plan and implement cost reduction activity - helping to mitigate the risk of price rises and inflation.

If you would like to understand more about our procurement and cost reduction work please get in touch.

About Ivo Business Solutions

Ivo Business Solutions works with business leaders to achieve significant improvement and change. This includes strategic and operational improvement – with an emphasis on action. We provide focused, commercial and data-driven insight to answer difficult questions, identify savings and revenue growth. Established in February 2003 – Ivo’s credentials come from running cost reduction and procurement programmes for nationally recognised organisations, particularly within the retail sector. Our approach… - We take a whole business view of opportunity and risk. - Have commercial drive and the passion of a business owner. - And apply curiosity, focus… and deep data analytics. Business owners, CEOs, and private equity firms hire us because we don’t take anything at face value, accept filtered information or averages – we are trusted to do a great job.