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Published
Jun 9, 2017
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Uncertainty to blight UK retail after election result but there could be a silver lining

Published
Jun 9, 2017

UK retail and fashion businesses face yet more uncertainty as the results of the general election show no party with an overall majority. The prospects for Brexit negotiations (and therefore the UK’s trading future) are now up in the air and consumers are possibly set to become even more cautious in the months ahead. And with talk of a potential second election this year, it’s unclear just how long the instability will continue.


It's still unclear who might be Prime Minister in a few month's time



While election results are usually more important domestically than anywhere else, the Brexit talks mean reactions outside of Britain are important too and the extent of the expected instability is clear from these reactions. The EU’s chief negotiator for Brexit, Michel Barnier indicated Friday that negotiations shouldn’t start almost immediately as they had been expected to do with no clarity on whether the UK negotiators would have a mandate to make any agreements. And the European Parliament’s chief Brexit negotiator Guy Verhofstadt said the result has made “already complex negotiations even more complicated.”

Meanwhile the pound has resumed its fall against the dollar and euro after what had been something of a recovery in its value in recent weeks and months.

But there could also be positives to come out of this for the retail sector with the chances of an ‘EU membership-lite’ trade deal between the EU and the UK strengthened.

Germany’s SDP leader Martin Schulz, who has been a prominent politician on the EU’s side as Brexit talks draw near, said Friday morning that he wanted to meet the leader of the UK Labour Party and that this was the end of the British plan for a so-called ‘hard Brexit’ that would take the UK out of the customs union.

WEAKER GOVERNMENT = SOFT BREXIT?

For those not having followed the news so far, Conservative Prime Minister Theresa May came to power after the Brexit vote last year and called the election to boost her majority and strengthen her hand in Brexit talks. But it seems that while the UK voted 52% in favour of leaving the EU, many voters have rejected May’s hard Brexit stance that was looking increasingly likely.

The Conservatives won the biggest share of the vote on Thursday but fell just short of commanding an absolute majority. They could even try to form a government in the next few days, weeks or months if the Conservative government hits the buffers. Long term, Theresa May looks unlikely to survive and pro-soft Brexit parties are virtually level with the Conservatives.

The retail sector is likely to welcome a soft Brexit as it would give it tariff-free access to the giant market next door to Britain. And it’s likely to mean the large number of Europeans working in UK retail would be able to stay. It could also mean an easier ride for the City of London and a lower chance of large numbers of high-spending consumers who work in the financial sector moving to Paris or Frankfurt or Dublin or anywhere else. That would cheer any retailers in the luxury sector.

The low pound that is likely to stay low for some time also means the tourist boom should continue. London luxury stores and retailers in coastal locations are set to see their cash registers continuing to ring as visitors from Russia, China, the US, the Middle East and other countries seek bargains in Britain.

But while other benefits for retailers could include a weaker government seeking more compromise on rising business property taxes or, if Labour has the chance to form a government, a reining-in of austerity policies, there is a downside. That is that domestic consumers are likely to remain cautious and become even more so until there is some clarity over the future.

Recent footfall figures, surveys and official sales data haven’t shown a sharp downturn in consumer spending but have pointed to a gradual weakening as shoppers worry about the future and about rising inflation. The very fact of an election can dent retail footfall with specialist tracker Springboard citing the 2015 election when visitor traffic to stores dropped notably post-election compared to the months before it.

INDUSTRY VIEW

Few people in business are commenting just yet. The British Retail Consortium hasn’t yet issued a statement but only a few days ago, its CEO Helen Dickinson said: “It’s vital that the next government helps retailers keep prices low for ordinary shoppers. This means, as well as securing a tariff-free trade deal with the EU, negotiating frictionless customs arrangements; providing certainty for EU colleagues working in the UK; and ensuring the continuity of existing EU legislation as it transfers into UK law.”


The prospects for a soft Brexit have been strengthened - Reuters



Meanwhile, John Kampfner, CEO of the Creative Industries Federation, said: “Theresa May has seen that there is no clear mandate for the government to negotiate a hard Brexit. Federation members were 96% in favour of remaining in the EU when surveyed before the referendum. They saw Brexit is a threat to the continued success of the creative industries, damaging growth and the UK’s global outlook. This general election vote now offers the opportunity to look at the issue again.

“The Federation will push for the UK to remain in the single market and the customs union and against undue restrictions on free movement, which we know will damage the capacity of the creative industries to deliver. Non-UK EU nationals are an important part of the creative economy.”

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