How is the UK manufacturing industry reacting to Brexit?
The UK manufacturing industry was already facing a difficult combination of major challenges – a skills shortage, the expense of automation and keeping up with regulations. Now the sector faces uncertainty relating to Brexit.
By a large majority, UK manufacturers were hoping for a different result in the recent EU referendum. Back in August 2015, a survey conducted by the manufacturers’ organisation EEF found that 85% of those polled wanted the UK to remain in the EU. In fact, 90% of firms with over 250 employees wanted to keep EU membership.
Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), a British trade group, said “Our members, our industry believed it was best for our country to stay in.”
Why did so many UK manufacturers believe remaining was the better option?
One reason so many large companies have set up in the UK, particularly in the manufacturing sector, is because of the potential to sell into the wider European market.
EU member states are big customers of UK exports. For instance, Britain is Europe’s third-largest car manufacturer and second-largest car buyer. 77% of all British-made cars are exported, of which the vast majority are sent to the EU.
‘Red tape’ is widely seen as a burden and is a common complaint against the EU. However, it does mean products are created to certain standards that are recognised on an international scale. Many manufacturers recognise that as products become more complex, international standards will likely be of more importance.
The UK manufacturing industry is still facing a skills shortage. Manufacturers may worry that the end of free movement could intensify the situation, as international investors may be less likely to build UK plants if they can’t find the people to work in them.
How has Brexit impacted the industry so far?
Even before 23 June 2016, the uncertainty about how the country would vote was impacting the manufacturing sector. The UK industry suffered its worst month in three years in April, in part due to uncertainty about the EU referendum, as well as uncertainty about the global economy and the oil and gas industry.
The vote to exit the EU has spooked some of our biggest manufacturers. Airbus UK (operators of the UK’s largest manufacturing facility by workforce size) said “What we will obviously have to reconsider – along with everyone else – are future investments … we certainly will be reviewing those investments in the UK.”
Are there any opportunities from the referendum outcome?
A potential upside of the pound dropping against other currencies (at time of writing the pound is 8% below the dollar and 7% below the euro) is it makes our exports cheaper. Foreign purchasers realise their cash will go a lot further in the current climate when buying UK goods. This could boost sales and production. In the UK, manufacturers may be more likely to buy components domestically rather than, more expensively, from overseas.
Terry Scuoler, chief executive of EEF, listed the priorities he believes should take focus in the upcoming negotiations between the UK and EU:
- Maintain tariff-free access to the EU market for goods and services
- Ensure regulatory stability
- Continue to address the UK skills gap
- Give further focus to an integrated domestic policy to support investment, competitiveness and export performance
“One thing about this industry,” SSMT’s Hawes said, “it’s pretty agile and it’s good at adapting to change.”
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