The UK’s economic recovery is expected to slow over coming months with the prices of clothing among other consumer goods jumping as a result of staff shortages, Brexit-related supply chain disruption and the GBP12bn (US$16.6bn) National Insurance hike announced earlier this week.
UK GDP is likely to slow to 2.8% in the third quarter and 1.6% in the last three months of 2021 after growing to 4.8% in the second quarter, the British Chambers of Commerce has said.
The BCC warning comes after the UK’s British Retail Consortium (BRC) said there will likely be a hike in product prices in the run-up to Christmas as HGV driver shortages and costs, shipping delays, and Brexit-related red tape continue to pressure supply chains.
Speaking exclusively to Just Style, Paul Alger of the UK Fashion & Textiles Association (UKFT) says the impact of Covid and Brexit have created the “perfect storm” but while many of the short term issues are the result of Covid (with changes to people’s working patterns in logistics around the world delaying shipping and receiving certain goods), for the longer term there are other important factors at play.
China, in particular, has dramatically extended its control of key raw materials pushing up the commodity price for essential raw materials across all industries and extending its control in strategic areas. And in the UK we are beginning to see the effects of Brexit on the economy and price increases are not far behind.
“So far most companies have absorbed these costs but they will not be able to do so for much longer.”
A further problem is the shortage of skilled workers.
“Delivery companies are paying twice what they used to before to keep goods moving. Companies in some parts of the economy are having to “overpay” workers to do some of these jobs and attract staff in the short and medium-term. This kind of wage inflation is not sustainable for the longer term and we are going to see price rises in the shops as the cost of Brexit becomes more apparent to consumers.
“So far many have blamed price rises and shortage of goods on Covid. But most of the staff costs relate to Brexit and they are here for the medium term at least,”
Algers says some large UK manufacturers are potentially downscaling their budgets for 2022, not due to a lack of business but because they are not confident that they can staff their factories.
“Covid may have caused them to re-hire more cautiously but the bigger effect is the lack of EU skills, either because those people can no longer live and work in the UK or because they don’t feel welcome.
“We are also still hearing of UK companies continuing to halt their UK to EU B2C sites (which helped them to survive Covid in the first place) because of the massive costs of customs declarations, duty and VAT which are now attached to B2C export sales to the EU – those costs are also here to stay for the long term.
“Whilst many companies are looking to expand into new markets, this is difficult at the moment and most companies feel that the new trade agreements will not help them to compensate for the loss of their largest market: the EU. UKFT is urging the government to work constructively with the EU to update the agreement so that it is more in line with the spirit of the deal which was promised.
“The main benefit to the UK fashion and textile industry from Brexit was always expected to be the potential to rebuild the UK’s onshore supply chain but this would be in jeopardy if UK manufacturing cannot access the staff and skills it needs to grow.”