URICA – Poor state of UK supply chains bad for UK economy

Apex Insight can exclusively reveal that supply chain funding network URICA has serious concerns for the growth and productivity of UK businesses.

The URICA Supply Chain Funding Index (SCFi) found:

• The Supply Chain Funding Index (SCFi) notably weaker in the past 6 months, falling from 6.6 to 6.2 out of 10
• 36% of businesses with an average score of 6-7 experienced a break in their supply chain – doubled since October 2016; majority reported disruptions or significant setbacks
• Nearly a third of businesses expect further deterioration in the next six months. As the SCFi heads towards 5 or below, the number of businesses experiencing a break increases to 44%, with 75% being most affected
• Concerns across all businesses – supply chain becoming considerably stretched and fragile in comparison to this time last year
• For all businesses surveyed, the ability to improve liquidity would enable investment, resulting in quicker growth and productivity
• More than half of businesses expect an increase in turnover of more than 5%, with nearly a third predicting growth to be more than 10%
• Chief Economist, Dr John Ashcroft, believes a further slump in the index towards 5.5 would cause fundamental concerns for businesses

The SCFi was developed by URICA along with YouGov and leading economist John Ashcroft. It measures that existing and forecasted condition of the UK’s supply chains. The latest SCFi found a ‘significant’ decline in supply chain strength since 2016. The SCFi is based on the responses of 1258 businesses in key sectors including manufacturing, engineering and construction.

Lindsay Whitelaw, chairman and founder of URICA commented: “These numbers are a real cause for concern. With businesses forecasting growth, but at the same time admitting their supply chains are stretched or fragile, you have to guess that many will suffer severe setbacks in their plans. Last week we saw numbers released showing that UK productivity continues to perform badly on the world stage. We continue to believe a 10% improvement in supply chain funding would lead to a 3% increase in growth and productivity.”

According to a statement sent to Apex Insight by URICA, “Unlocking liquidity within the supply chain will in turn stimulate growth and productivity within the UK economy, as businesses are enabled to invest in growth.”

Dr John Ashcroft, chief economist, said: “A further slump in the index towards 5.5 would be a real cause for concern for the welfare of SMEs in the UK and the capacity to capitalise on the export opportunities a truly global Britain may present.

“As Article 50 negotiations get under way, the fear in further disruption in supply chain funding may push the headline index still lower. Anxieties about the outcome of any EU trade deal and continued Sterling volatility may continue into 2017.”


A healthy supply chain is crucial to drive the UK’s economy. Whilst Brexit and sterling fluctuations no doubt impact businesses’ trade, and subsequently their turnover, the SCFi highlights that the UK supply chain is in need of urgent attention.


The statement continued, “A continuing slump in the Supply Chain Funding index (SCFi) is a real concern for the growth and productivity of British businesses.

“The URICA Supply Chain Funding index fell to 6.2 in February compared to 6.6 in October 2016. At first sight it is difficult to reconcile the softening in the data with the ongoing strength of the UK economy in the final quarter of 2016 and into the first quarter of 2017. However, it is clear from within the survey results concerns about Brexit and the vagaries of Sterling are causing concern.

“As Article 50 negotiations get under way, the fear is that further disruption in supply chain funding may push the headline index still lower. Anxieties about the outcome of any EU trade deal and continued Sterling volatility may continue into 2017. A further slump in the index towards 5.5 would be a real cause for concern for the welfare of SMEs in the UK and the capacity to capitalise on the export opportunities a truly global Britain may present.”

With regard payment term pressured in supply chains the report found, “Firms at middle and lower end of the supply chain continue to bear the brunt of any payment squeeze. The construction sector is the most vulnerable to payment pressures along with engineering and maintenance. It is interesting to note the strength of the supply chain network in the vehicle business. This augurs well, perhaps, for any trade distortions post Brexit.

“Rising inflation and a slowdown in consumer spending may be impacting on sentiment in the survey. Manufacturing output prices increased by 3.7% in February, as input costs increased by just over 19%. The pressure on energy and commodity prices continues, given the recovery in world trade and the weakness of Sterling. Inflation CPI basis increased to 2.3% in the month.”

URICA also stated with regard Brexit and the weak Sterling, “In the survey data business expressed concern about the uncertainty surrounding Brexit and the vagaries of currency. 45% of business claimed Brexit would have a negative effect on business compared to just 14% who considered this would have a positive impact.

On currency, 52% considered a falling pound would be bad for business, just 20% thought a falling pound would be good for business. On the other hand, 43% considered a rising pound would have a positive impact on business and 21% considered a rising pound would be bad for business. The reality of business response is at odds with conventional economic theory.”

It found that businesses predict export growth: “The number of firms exporting has increased from 49% to 51% in the February survey. It is expected to rise to 55% over the next twelve months. Overall two thirds of businesses expect to see an increase in turnover over the forecast period. Despite the slowdown in the Supply Chain Funding index, businesses are optimistic about the year ahead.

The URICA survey makes clear once again:” Improvement in funding would lead to greater liquidity which would improve the prospects for employment and investment”. We continue to believe a 10% improvement in supply chain funding would lead to a 3% increase in growth and productivity. The Supply Chain Funding index has once again provided good insights on how this can be achieved.

The full report can be found here http://scfindex.com/
 
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