UK election: what a hung parliament means for food and drink companies

The result of the British general election has left food and drink companies facing an uncertain immediate future, with a weak pound guaranteed to increase costs and make British companies more susceptible to foreign takeovers.

However, the medium-to-long-term result may be more positive, increasing the probability of a soft Brexit and a soft border between Northern Ireland and the Republic of Ireland, which could prove crucial to keeping future cost increases down. By 2018, food and drink companies may come to see the minority government as a fortuitous event.

The immediate future is concerning. Britain faces an uncertain political future after the Conservative party lost their majority at the polls. As a result, the pound has lost value and British consumers should brace themselves for price rises as the cost of importing goods and ingredients increases. The weak pound also makes it easier for foreign companies to buy British companies as it makes acquisitions cheaper.

Uncertainty over the stability of a minority Conservative government also means food and drinks companies will delay making significant investments in British facilities or staff. The months ahead will determine the strength of the British government and its Brexit negotiating position. It is only once this is more apparent that companies will feel comfortable committing to long term investment programmes. Equipment suppliers will be the biggest losers of this, as companies will push existing machinery to work longer and wait to see if consumer confidence remains at a level where investing in upgrades or expansions is worthwhile.

But once the immediate instability is over, food and drink companies may see the election results as a positive event. Brexit negotiations will have commenced, meaning food and drinks companies can operate in an environment where they have a better idea of what the future relationship between the UK and the EU will look like. The strength of the Labour party and the increased power of pro-EU Conservative politicians also make it more likely a soft Brexit will be negotiated, maintaining existing access to EU markets.

The Conservative party will govern in association with Northern Ireland’s Democratic Union Party (DUP). The DUP favours a soft border with the Republic of Ireland to maintain strong trade links. The Conservative’s reliance on DUP votes means the status quo is likely to remain. This is good news for the many British companies that both source ingredients from the Republic and sell products into this growing market. Packaged food sales in the Republic are forecast to increase in value by more than €800 million between 2017 and 2020. A soft border means British companies can be quietly confident of taking a substantial share of this growth.