Businesses blaming Brexit?

John Lewis blames Brexit for their profits dropping

Download Perspecs

Are businesses right to blame Brexit for their problems?

By Joe Harker

British retailer John Lewis has reported that profits have dropped by 99 per cent in the first half of the year with an equally gloomy outlook for the rest of 2018. One wonders if they'll have to go for a cheaper Christmas advert this year.

The retailer has blamed a "challenging time" in the market for some of their problems. Sales are up 1.6 per cent to to £5.5 billion but pre tax profits fell to £1.2 million. The firm is struggling with its "Never Knowingly Undersold" strategy as rivals are cutting prices to match John Lewis'.

Sir Charlie Mayfield, chairman of John Lewis, said costs had risen sharply due to the weakening of the pound since the EU referendum. He also spoke out against a no deal Brexit as "a very bad outcome for the UK".

Brexit secretary Dominic Raab hit back by suggesting that struggling businesses were using Brexit as an excuse for their problems. Raab is laying out more contingency plans in the event of leaving the EU with no deal to go along with the existing stockpiles of food and medicine to cover for shortages. He insisted that businesses were taking the easy option and blaming Brexit for their problems, though conceded that the uncertainty around the UK leaving the EU would cause issues for businesses.

Sir Charlie responded that he had not named Brexit as the reason for John Lewis' collapse in profits. Instead he explained the effect that a weaker currency had on his business. He said: "The fact is sterling is weaker, it's more expensive to import goods, so we have to absorb that within our margin."

A weaker currency makes exports easier but causes imports to become more expensive. The pound has been much weaker since the EU referendum making things harder for retailers who import many of their products to sell. This is why countries with high exports like China keep their currency weak, it provides them with an advantage.

John Lewis is not the only business in the UK to be accused of blaming Brexit. Ralf Speth, CEO of Jaguar Land Rover, warned that disruption to their supply chain in the event of a no deal Brexit could mean production in the UK comes to a halt and cost a huge amount to the economy.

Many businesses in the UK use a "just in time" supply chain that is dependent on the regular inflow of goods. If that comes to a halt then many businesses will too. That could mean huge losses leading to redundancies in the worst cases.

Tory MP Owen Paterson refuted Speth's claims, insisting that JLR will thrive after Brexit with cheaper car parts being available for import. Of course, that depends on the government being able to deliver what Prime Minister Theresa May has promised the House of Commons.

Perhaps businesses are being pessimistic about Brexit and blaming it for too many problems. However, if they have concerns about the effect leaving the EU will have on the UK then it would be irresponsible not to voice them.

Download Perspecs
Download Perspecs