While the spectre of Brexit may have been, at the time, overshadowed by Theresa May’s decision to call a snap election, now the election is over and the votes have been cast, this will soon be restored to the forefront of British minds. Make no mistake: the UK faces a huge challenge if it is to agree a favourable deal, and one that provides the country with a foundation from which to build for the future.
Despite the result and her continuing in the position of Prime Minister, doubts are still surrounding May’s suitability and approachability as a key negotiator. However, the UK must face up to the very real proposition of being unable to achieve any form of progressive deal with the EU.
This could spell bad news for business-owners, who are already struggling to cope with the uncertainty caused by the Brexit vote. The main question is how will the continued negotiations impact on product-oriented businesses and innovators, particularly once discussions begin in a few months time?
The most obvious impact of Brexit concerns the performance of the pound (GBP), which has twice plunged to 31-year lows in the 12 months since the referendum vote. Even now, the pound continues to trade in a restricted range against the U.S. Dollar (USD), which in turn is having a negative impact on investor and business sentiment.
The nature of macroeconomics and the aggregate economy means that Brexit and the sustained devaluation of the pound has an ever greater impact on product innovators. The low value of the pound has caused the cost of imports to rise incrementally, for example, making it increasingly difficult to source affordable materials or components and maintain profitability. Without the capacity to build viable and affordable products, businesses can struggle to set a competitive price and achieve the necessary returns.
It may be argued that the garden is a little rosier for businesses that export their products, of course, as it is cheaper for buyers to procure UK innovations thanks to the devalued pound. This can create greater levels of market competition and increase turnover, although once again businesses would be required to reduce costs in order to maintain their margins. A far greater concern is the access that British businesses and innovators will have to the European market, as it is hard to determine what type of agreement is likely to be reached by negotiators at this stage.
More specifically, an estimated 43% of UK exports are sold to European member states. This makes the EU Britain’s most prolific trading partner, and even in the best-case scenario all transactions would be subjected to higher tariffs and commissions. If no deal was reached, Britain may be forced to revert WTO regulations, forcing the nation to accept more significant costs and a decidedly more arduous negotiation process. This would be bad news for product-oriented brands and designers, who would find it harder to sell while meeting their various financial requirements.
As we can see, the Brexit process is unprecedented and it is hard to determine precisely what challenges brands and innovators will face over the coming years. One thing that we can rely on is the fact that the cost of creating and selling products is likely to increase over time, while the process of reaching a large, global audience may also become more challenging depending on the nature of the deal that is reached between the UK and the EU.
By Zak Goldberg
Zak Goldberg is a Law & Business Graduate from the University of Leeds who has chosen to follow his aspirations of becoming a full-time published writer, offering his expertise on all areas of law, fintech and business economics.