IT benchmarking experts at KnowledgeBus are warning buyers to expect a sharp increase in UK product prices following the EU referendum vote.
Within hours of the leave vote being declared last Friday, manufacturers and distributors began issuing warnings that they were about to raise prices, or that they would only hold their current prices while stocks last.
As the pound has tumbled to historic lows, manufacturers (who buy their components in US dollars), and some distributors who buy products in dollars and Euros, are being left with no choice but to increase prices if they are to protect their profit margins.
On Friday alone, KnowledgeBus recorded more than 26,000 price rises in the UK IT product market. Yet, this is expected to be the tipping point as historic price rises based on currency fluctuations do not tend to be as immediate unless related to a disaster like the Japan tsunami.
“Whenever the pound falls against the US dollar, the trend is for UK IT product prices to eventually increase,” said Al Nagar, head of benchmarking at KnowledgeBus. “The important thing for UK IT buyers to note is that these price hikes are not usually immediate – there is typically an adjustment period. Manufacturers may take a short term hit in the first month, but if they do there is every chance they will look to compensate further down the line. If this is the case, we can expect a percentage price rise that exceeds the percentage fall in the pound against the dollar.”
The big fear for buyers is that suppliers will now look to exploit uncertainty in the market to hide the scale of the margin they are charging. Although industry best practice, set out by the Society of IT managers (SOCTIM) states buyers should pay no more than a 3% margin, KnowledgeBus has evidence of suppliers regularly charging mark-ups far in excess of this. In some extreme cases margins can reach more than 1000%.
“Suppliers can do this when there is uncertainty and a lack of clarity over prices exists,” said Al. “The best way to avoid this scenario is to deploy a benchmarking tool that will give full market transparency in regards to trade prices and stock levels. With this tool in place, buyers can then police their suppliers from taking advantage of continuing turbulence caused by Brexit.