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Is Brexit going to squeeze corporate tech budgets?

The Brexit price problem started with a jar of marmite. Or rather several jars of marmite. They were on sale in Tesco and Unilever had to put the price up because the value of the pound has been falling since the UK announced its intention to leave the European Union,

Except – and this becomes important a little later – Tesco didn’t think this was reasonable. Marmite is manufactured in the UK, therefore price fluctuations shouldn’t affect it. Unilever backed down, although since then Morrisons has increased the dark spread’s RRP.

The reason it’s worth considering the implications in a technology publication are simple. Marmite is outside our remit, but last week Apple introduced some new technology and quietly hiked the price of a number of its existing computers by hundreds of pounds. Even more quietly Dell has done the same, and Microsoft‘s software costs are also going up. So does this mean Brexit is unalloyed bad news for the IT buyer?

Brexit highlights an existing problem

The marmite incident is telling in one way: it highlights the idea that a price rise is a conscious decision, it isn’t an automatic thing. In the same way, setting UK pricing for American technology has rarely followed a straightforward dollar-to-pound formula.

Take a single product, Apple’s iPad Air 2. A quick Google search suggests that this is available at the manufacturer’s suggested retail price of $399 in the US, assuming the 32 gigabyte model is of interest. Compare it to the Tesco price of £379 at the moment, with the iPad Air 3 imminent, and you begin to realise British pricing has never worked on the basis of an exchange rate.

It’s reasonable enough to suggest that it shouldn’t, in many ways. VAT isn’t something that exists in the US, and for a long time the taxes and import duties have been hitting IT as this clipping from the Guardian will verify. It concerns the price of the Playstation 3 in 2007, which cost £425 at launch compared to $599 in the US (about £350 at the time) and £300 in Japan.

There are also issues surrounding the cost of living in the UK, as the old Guardian article attests. Pay a distribution network a decent rate (and remember the release of the PS4 was well before the Living Wage legislation) and you have to start adding extra margin before local costs are met.

So the price was always going to be higher in pounds than in dollars. None of which is going to help the already-pressured technology professional who needs to make an IT budget go further. Apple, Dell and Microsoft are increasing their prices and stating that the pound is the driver (and implicitly stating, by making permanent increases, they they are expecting the pound to stay low).

It’s not going away.

Is the answer in the clouds?

One element that might mitigate the price increases is the emergence of the cloud. Granted, Microsoft’s Azure is among the offerings to increase its prices but the hardware companies may find that instead of increasing their outlay on physical computers, IT departments will look more and more to the cloud.

Whether this rebounds particularly on the hardware companies or just accelerates a process of moving applications and data off site is never going to be clear as the cloud was becoming more important anyway. What’s certain is that the falling pound will raise not only the cost of living but the costs of business, and that four months after the Brexit referendum we’re probably seeing only the beginning of the changes.