One of the many knock-on effects of the Brexit vote has been the sharp fall in the value of the pound. This has affected various companies in the packaging supply stream, especially when purchasing raw materials from Europe.
According to Kieran Ferguson, managing director at paper merchant Warren, some paper mills are taking a long view and maintaining current pricing but with the caveat that this may need to be reviewed dependent upon how exchange rates move.
“Moving forward it’s clear we are unable to absorb these increases and, where applied, will have to pass them on,” said Ferguson. “Obviously, we’re trying to minimise the impact upon our customers by offering a choice of products where no increase has been applied or from our existing stock range that hasn’t been impacted as yet.”
He added: “It’s clear this is a difficult situation for all parties and one that has polarized opinion throughout the trade. We’re in unchartered territory and I believe it’s a time for calm heads. We need sensible discussions that recognise the challenges faced by customers and suppliers alike and with this cooperation and a little luck, we’ll work our way through this together.”
But the fallout in the business community from Brexit appears to have esculated with business leaders expecting to cut capital spending in the next year.
According to a survey from Deloitte, 82% of chief financial offers officers from FTSE 350 and large private companies are likely to cut spending. The second quarter figure is the biggest on record and a significant increase on the first quarter, when 34% were cutting spending.
The UK’s vote to leave the EU appears to be hitting business confidence with forecast group EY Item Club claiming that business investment and consumer spending will be held back because of economic uncertainty. It added that the UK economy will face a “short, sharp shock” and consumer spending will fall next year.
Stephen Lloyd, marketing consultant for Americk Packaging, told Packaging News that the company calculated an average of 5% in raw material increases which, given the nature of the packaging industry, associated margins and exchange rate volatility, will have to be passed on.
He added: “Couple this with the announcement regarding European fresh produce suppliers and growers set to increase their prices, the UK consumer is likely to see an increase in their weekly grocery bill very soon. Clearly this will also provide an opportunity for the budget brands to continue their growth plans and provide keen competition for the larger retail chains.”
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