What impact will Brexit have on the price you pay for IT

With British citizens voting to leave the EU, the question on most IT buyer's minds is – How will the European Union referendum effect this already volatile market and the price we pay for IT?

Executive summary

The IT industry is undoubtedly one of the most volatile markets with price and stock fluctuating on a regular basis and up to a million price changes within a quarter. Under normal circumstances this level of price and stock changes would be hard to keep an eye on, but with British citizens voting to leave the EU, the question on most IT buyer's minds is – how will the European Union referendum effect this already volatile market and the price we pay for IT?

How the market works

When purchasing IT products, understanding the supply chain behind each product and components that make up that finished product is key, particularly considering manufacturers often plan their product portfolio up to a year before they hit the shelves.

Final goods are comprised of different components and pass via a variable supply chain across different geographies, distances and currencies.  All of this plays a role in final product sell price, and the impact of a big change in the supply chain might have an instantaneous or delayed effect on prices depending on the scale of the change. For instance, the Japan tsunami immediately caused the price of WD HDD drives to sky rocket as a result of short supply. Brexit is forecast to impact price and stock in various ways, with exchange rates being the greatest impactor.

The Instantaneous Impact

On 24th June 2016, Britain was left in shock whilst the pound plummeted to a 31-year low with oil following suit. Worldwide exchange rates reacted immediately pushing up the price of goods. Short term it's certain this will effect the cost of IT products. "The price of everything will go up. The pound has dropped by 5% or more, and it's changing even as we speak. Prices will all increase – all reseller prices are in dollars.” - Entatech chairman Dave Atherton

Furthermore, some distributors and manufacturers issued price warnings into resellers of instantaneous price rises on certain brands – citing the value of the pound against the dollar.  Others have indicated the current price of in-stock items will undoubtedly be honoured but rises most likely once current stock is sold.

Price and stock data in the supply chain indicated on Friday 24th there have been 26,884 price increases, which although is high, it is not abnormally so in this context.

The long term

As manufacture costs fluctuate as a result of Brexit's effect on exchange rates, so price changes are certain to follow suit consistent with supply chain timelines.  Also, watch for prices of raw materials found in manufacture of computer products.  Copper, aluminium and zinc prices often rise and fall with the dollar rate, which impacts on end product prices that IT buyers pay months later.

Once Article 50 is submitted, the UK will start negotiating significantly more than fifty free trade deals with countries which range from Canada to South Korea – an important IT component maker.  It's undefined just how long these agreements will take and the total impact they'll have on UK IT procurement.  If trade deals can't be agreed, then the UK will import under the World Trade Organisation's rules – meaning imported goods will undoubtedly be susceptible to a levy to cover an admin burden beyond current –a cost that will certainly be included with the end price of IT products.

What should I do?

It is crucial more than ever that IT buyers monitor exchange rates and raw material prices closely when looking to make any purchases to ensure they get the best price possible, today and tomorrow. Exchange rate is the biggest impactor and often dictates a swift change in product prices if large negative movements occur.

Watch for some IT sellers who may use these unstable times to their advantage – unnecessarily increasing margins for short term gain.

3 Top Tips for IT procurers amidst Brexit

  1. Forward Purchasing

    The total impact of how the vote will effect the supply chain is currently unknown. However, what we do know is some within the supply chain have increased their prices already, whilst others are holding price on in-stock items with rises forecast for new stock. If you have planned purchases or regular buy items it may be worthwhile considering bringing them forward to safeguard budgets into the future.

  2. Scrutinise prices before any purchase

    Some unscrupulous suppliers may choose to increase their prices for short term gain. Watch out. Always make sure your suppliers offer you transparency across prices.

  3. Monitor exchange rates

    Keep an eye on those exchange rates, as they could dramatically increase and decrease. They impact logistics costs, manufacture costs and end product prices, both today and longer term. Consider your alternatives and consider planning purchases for the optimum time for best price if you can.