Like every sector of our economy, the furniture industry has been facing uncertainties in relation to the vote to exit European Union of June 23rd in the UK. Prices of raw materials critical in the British furniture industry have also been changing. It’s expected that the prices might go up by 8-12 percent as the raw materials cost goes up if the association of the British Furniture Manufacturers is anything to go by. It’s worth noting that no matter what side of the Brexit divide you were on about 55 percent of the United Kingdom’s imports are from the European Union.
Strong reaction to fluctuations
The association has indicated a strong reaction within the supply chain of furniture in the UK due to the fluctuations of the sterling pound. Essentially, the pound dipped by 12 percent against the US Dollar and 8 percent to the Euro in June when the Brexit vote was about to happen. In 2015, around the same time the sterling pound was above both the Euro and dollar by 16 percent.
Cost could be going up
According to the association, most of the materials used in the furniture industry in the UK are sourced from around the world and as the Euro/Dollar remains stronger than the pound the cost is expected to substantially go up. Lots of elements within the furniture industry have indicated that they might be increasing the cost of their furniture products by 8-12 percent to cater for the increase in raw materials. Nonetheless, the British Furniture Manufacturers claim to understand the uncertainties and upheavals in the industry and will do as much as it can to offer support.
The association has been able to use its own cost tracking system and analysed a variety of 37 feedstocks or materials, essentially determining the costs generally given to every furniture manufacturer. With each commodity the association looked into, spanning the referendum vote period, the prices were contrasted over a year and month. As a result, the association was able to find most of the monthly changes in cost appeared the same for diverse items, reflecting the dipping of the Sterling pound against major world currencies. The data indicates over 12 months the cost of feedstock/raw materials has been going up noticeably. Some of the materials looked into by the association of the British Furniture Manufacturer included hides, boards of diverse compositions, steel wire meshes, foam chemicals, softwoods and hardwoods as well as fibres.
Three and half year business confidence low
According to the association’s State of Trade of June 2016 before the vote to leave EU was cast, the furniture manufacturers’ business confidence had dipped considerably. The industry remained a lot pessimistic concerning the future, which is the lowest in the last 42 months. Apparently, intake of new orders and output has not been going towards the right direction.
Considering that the association’s survey was taken before the vote, it’s expected a lot will change. A quarter of all the manufacturers surveyed indicated their belief that the cost of raw materials would go up all summer as well as in autumn. Of course, with the cost of raw materials having gone up by 8-12 percent the pessimism is real. The fluctuating exchange rate has been hard hitting furniture manufacturers as the cost in Sterling Pound of a raw material such as TDI and Polyol Flexible or Foam went up by 7 percent. The pound was exchanging in Euros between June 22nd and June 29th 2016.
On a brighter note however, the Financial Survey Ratios by the British manufacturers association indicated that even with its challenges 2015-2016 was a very successful year in terms of profits. Of all furniture manufacturers only 5 percent made losses.
At about the same time the referendum vote was cast and results given, virtually all sectors were affected and lots of Britons were even contemplating working abroad and putting huge purchases of non-food items, including homes on ice. The financial markets triggered panic that followed the Brexit vote rippled down across all areas of decision making in Britain and consumers were bracing themselves and preparing for a long and sustained uncertainty.
According to Retail Economics, after the Brexit vote lots of people surveyed were making plans to cut back on lots of expensive purchases from furniture, bathrooms, TVs to holidays. Most shoppers had relegated themselves to a survival mode lifestyle after the vote and waiting to see what will happen while expecting the worst of financial struggles in the coming years.
While Store sales went up in June and online sales of non-food products went down in the same month due to the Brexit campaigns and the vote’s aftermath, July figures show that most of the pessimism had dissipated. People had returned to their spending ways, albeit with an eye on the future waiting for the process of Britain’s exit from London to be complete and to see what would happen thereafter