On Tuesday 11th October the Bank of England reported that the Sterling Effective Exchange Rate Index (EERI) – a measure of the value of the pound that is calculated according to how much trade we do with different countries, and in various currencies, fell to the lowest level ever recorded. This was lower than 11th October 2008, the height of the global financial crisis, and 12th December 1993, when our currency was forced out of the Exchange Rate Mechanism (ERM). This has huge implications for price inflation.
At the time of writing, the pound is 18% lower against the US dollar and 15% down against the euro from the exchange rates that applied on 23rd June. These two currencies account for nearly 70% of the UK’s bilateral trade flows.
Those of us who have recently been on a foreign holiday will have already noticed the effect that this has had on the price of hotels and meals – what we may well call ‘Brexit prices’. Others will have read with interest the recent dispute between Tesco and Unilever, where products such as Marmite and Flora margarine were removed from stock. The retailer refused to accept a price hike imposed by the manufacturer as a result of the increased cost of importing products. The fact is that the UK is a net importer of goods, in both consumer and business markets.
At BNP Paribas Leasing Solutions, we’ve researched the price increases that manufacturers of business equipment and plant and machinery are likely to impose on their UK distributors as a result of the depreciating pound. Unsurprisingly, our research shows price increases of between 7-12% appear to have been either imposed already, or are ‘in the pipeline’. Whilst these may be absorbed in the short-term, eventually these Brexit prices will be passed onto the end users.
My view is that whilst little can be done to offset the increased cost of consumables, acquiring capital equipment now, perhaps ahead of scheduled replacement, can give users the opportunity to finalise a deal before price increases come into effect. Taking a decision to bring forward investment decisions can put pressure on budgets and this is where leasing can offer a solution.
Rental payments will be based on the current price of the equipment, but the cost of acquisition will be spread over several years. Another factor to consider is that lease rates are now cheaper than they have been for many years and are fixed for the duration of any lease agreement.
Dealers, manufacturers and resellers who sell imported capital equipment should maximise the short window of opportunity now, before Brexit prices begin to have an impact on end users.
Andy is an experienced sales and finance professional with over 25 years’ experience in sales aid leasing. Andy is widely recognised as an expert in business finance and has in recent years focused his attention on developing partner sales teams develop an understanding of how businesses secure project financing. His training programme – Finance Unlocked – is a highly rated customisable course and is offered at no cost to partners.
If you’re interested in helping your sales team overcome finance-related hurdles during the selling cycle, please get in touch with Andy on 07966 114 243 or email here.