Like most companies, Cocoon has been reviewing the impact of various Brexit scenarios on its business. Brexit is the biggest economic event in recent years, so it would be foolish to ignore it.

The short answer, and possibly a naïve one, is that we’re ok. Our suppliers are overwhelmingly UK based; the original source of the merchandise we source through them is either the UK itself, or outside the EU already; we have a comfortable amount of merchandise in stock; the great majority of our corporate customers are UK based, as are the people for whom they are buying gifts; and pretty much all our staff are from the UK. Looked at this way, we’re pretty Brexit-proofed.

Looking more deeply, though, the position is far less clear. The key question is what the medium term impact will be on our customers and suppliers, and therefore on demand for our services and on our ability to supply. Given that the high level nature of any Brexit, let alone any detail, remains unclear, this is a tough question.

Looking for answers, we would do well to steer clear of politicians, who are more into soundbites than deep analysis, and more into spin than objectivity. Instead we seek guidance from those whose job it is to provide it, starting with the Bank of England.

The first theme is uncertainty. Businesses want a predictable environment in which to make their decisions, and they don’t have one. A Staff Working Paper (https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/brexit-and-uncertainty-insights-from-the-decision-maker-panel.pdf?la=en&hash=29A36FBC73CE71760D28C1201A889AF050EFC2D0) said the following:

“…the nature of this uncertainty is different from that of a typical uncertainty shock because of its length, breadth and political complexity. Consequently, a new firm-level survey, the Decision Maker Panel (DMP), was created to investigate this, finding three key results. First, Brexit was reported to be one of the top three sources of uncertainty for around 40% of UK businesses in the two years after the vote in June 2016 referendum. This proportion increased further in Autumn 2018. Hence, Brexit provided both a major and persistent uncertainty shock. Second, uncertainty has been higher in industries that are more dependent on trade with the EU and on EU migrant labour. Third, the uncertainties around Brexit have been primarily about the impact on businesses over the longer term rather than shorter term, including uncertainty about the timing of any transition arrangements and around the nature of Brexit.”

So it’s big and it’s scary for some companies, and nobody knows what’s going to happen. Not a great environment for investment.

The next theme is the impact on the value of the pound. The following chart shows the GBP to USD exchange rates over a five year period:

There are similar patterns versus other currencies. The big drop was on 23rd June 2016, when the referendum result was announced, as traders factored in the feared economic damage.

Of course there are many influences on a chart such as this, and we claim no special insights as to what sterling will do in future. But Brexit has caused the pound to fall, making imports more expensive and exports cheaper.

So finally, what’s the likely overall impact on economic activity, which we take as a proxy for the impact on our stakeholders. Of course the level of uncertainty makes forecasting difficult, but the Bank of England have had a go based on various relationships, or lack of them, being discussed:

The details, and underlying assumptions, can be found here: https://www.bankofengland.co.uk/report/2018/eu-withdrawal-scenarios-and-monetary-and-financial-stability.

So the story seems to be that, apart from the most extreme ‘no deal’ scenario, economic growth will be depressed compared to what it would otherwise have been, but not entirely eliminated. That’s a situation in which most companies can survive, if not exactly thrive.

So our naïve analysis for Cocoon may not be too far off after all. The future will likely be a bit less exciting than it would have been without Brexit; but the great majority of our customers and suppliers should survive it without insuperable problems, and we ourselves should be fine.

Keep your customers happy and engaged through these troubled times. Send them a gift from https://cocooncorporate.co.uk/.