Few commentators were prepared for the scale of the “Leave” vote in June’s Brexit referendum. Both politicians and the manufacturing industry were undeniably shocked at the outcome, and the Bank of England lost little time in slashing interest rates to a historic low of 0.25%, and taking steps to bolster domestic demand.
Six months on, though, the world looks a little different. The sky has not fallen in, and disaster has not yet struck. Those same statistics and surveys that showed the manufacturing industry in a state of post-Brexit gloom now show manufacturers as being reasonably optimistic.
Granted, that is partly because no one yet knows —not even the government, it seems—exactly what that post-Brexit future will look when it arrives, or in deed what Brexit means for UK manufacturing. And to be sure, until those negotiations begin, and the Brexit timetable is concluded, then the manufacturing industry still benefits from the UK’s full membership of the European Union.
In the meantime, though, there’s quite a lot for manufacturing industry to feel buoyant about.
A cheaper pound boosts exports
One immediate consequence of the June 23rd referendum was a 20% collapse in the value of the pound.
At a stroke, this made the country’s exports more competitive—and sure enough, as the shock of the Brexit vote wore off, manufacturing industry surveys and statistics began to show a boom in export orders and enquiries.
August’s purchasing managers’ survey, compiled by economic analysts IHS Markit, showed new export business grew at the fastest pace in over two years—just six weeks after the vote.
Industry trade body EEF, which represents thousands of manufacturers and engineers, spoke of an “export revival”, with export demand especially strong in electronics and electrical equipment.
And the good news has continued since. In early December, IHS Markit’s manufacturing purchasing managers’ survey showed export orders growing at well above average rates, with robust export demand from the United States, mainland Europe and the Middle East.
Higher prices constrain imports
That same 20% devaluation in the pound also makes imports more expensive. And as IHS Markit’s chief economist Howard Archer points out, a substantially weakened pound also makes imports to the UK markedly more expensive, which should help domestic companies to gain market share.
Granted, raw material input prices of imported materials will be higher, but labour and domestically-sourced materials will be unaffected.
Put another way, the net effect is again a positive for much of the UK manufacturing industry. The effect will be slower to show up in official figures, say experts, but one indication that this is happening is that manufacturing activity levels are remaining determinedly higher than initial post-Brexit projections.
Market access could continue
Finally, much was made after the referendum about the loss of access to the European Union’s Single Market.
In the sober light of day, even hardline pro-Brexit politicians seem to be reining back on this, with current talk being of negotiated exemptions, paying into the EU budget so as to continue to enjoy access to the Single Market, and so on.
It’s too early to be certain about any of this, and the situation—to say the least—remains very fluid.
But if, on June 24th, the reaction of much of the manufacturing industry was that the glass was empty, there are today reasonable grounds for thinking that it’s now half-full.
On which note, then, let’s raise that glass—and celebrate some Christmas cheer, and a hopefully prosperous New Year!
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