With Theresa May confirming that she intends to embark on a full departure from the single market as Brexit negotiations are due to commence by early April, what are the likely implications for the UK fashion industry?
While the Supreme Court has now ruled that parliament will need to approve the government’s plans, the withdrawal from the single market is still likely to affect many companies within the sector that currently export and import to and from the European Union.
The industry has, so far, responded well since the vote to leave the EU and is currently in a good place. Statistics published last summer from the British Fashion Council showed the sector had increased in value from £26bn in 2013 to £28bn, an 8% jump. Employment in the clothing and footwear retail, manufacturing and wholesale sectors rose from 790,000 to 880,000.
This healthy growth has come despite the fact that many EU-based suppliers to the UK fashion industry were forced to hike prices in the immediate aftermath of the referendum when sterling lost around nine per cent of its value against some other major international currencies.
The likelihood in the longer term is that larger fashion retailers could feel the impact of Brexit, especially a “hard” Brexit, more harshly if their supply chain is closely aligned to the EU, as a weaker pound and potential future trading levies will raise operating costs.
Smaller artisan labels may, however, benefit from the downward fluctuations in the pound as British-made products become more cost effective compared with those currently being imported.
The stronger than expected economic growth for the UK – an increase in GDP of 0.6% for the final quarter of last year and the predicted 1.7% rise in consumer spending (the findings of the latest report from forecasting group EY Item Club) – creates an overall positive outlook for the UK fashion sector.
The British Fashion Council’s High-end and Designer Manufacturing Report suggests that there will be a 65% increase in demand for UK-made high-end products in the next five years. This type of growth on the back of demand for UK products led by a lower-value pound could deliver an additional £400m in revenues for the sector and create another 1,700 jobs.
While the short-term outlook is reasonably good, there are concerns about further currency volatility as markets respond to the forthcoming Brexit negotiations, as well as other political events taking place across Europe this year, such as France’s general election. Effective currency management with a smart strategy will be essential to insulate any UK fashion and textile businesses that are active in the export or import market.
Greg Smith is head of trading at foreign exchange specialists Global Reach Partners