It’s fair to say that the UK’s Brexit vote came as something of a shock—a shock to politicians, business leaders, economists, and governments across Europe and beyond. And, of course, to UK manufacturing, where the outcome of the referendum was the opposite of what most UK manufacturing businesses had said that they wanted.
It’s far from clear as to what will be the impact of Brexit on UK manufacturing. As became clear when the dust settled on the morning of June 24th, there wasn’t really a Brexit plan, ready to be dusted off and implemented.
All of a sudden, the debate—as perhaps it should have done all along—turned to what it would mean to UK manufacturing to lose access to Europe’s single market, and at what cost continuing access to that single market might be secured.
As I write these words, a new government is attempting to determine answers to that question and many others. It appears that Article 50—the formal notification of Brexit—won’t be triggered until the UK government has formulated a negotiating position, which is expected to take until the end of the year.
And already, UK manufacturing bodies are contributing to the debate about that negotiating position. The Confederation of British Industry, for instance, has published a five-point set of principles for the government’s Brexit negotiations, beginning with the demand that continued tariff-free UK‑EU trade should be one of the highest priorities.
Over time, it is expected that other UK manufacturing bodies, such as the EEF and various industry-specific forums, will follow suit. And through their own channels, the UK’s very largest manufacturers will also be making representations as to what form Brexit should take.
In short, months of uncertainty lie ahead, and—perhaps to no great surprise—economic statistics are already reflecting that. By the time you read these words, the Bank of England could be just days away from cutting interest rates to 0.25% or perhaps below.
In the meantime, even though Article 50 has yet to be triggered, the pound has effectively been devalued, to a 30-year low against the dollar. Good news for exporters, to be sure—but the UK is a net importer of manufactured products.
Competitiveness is crucial
Here at Kerridge Commercial Systems, our own view of Brexit is clear. Whatever precise form Brexit takes, it is vital that UK manufacturing remains innovative, competitive, and in a position of technology leadership.
And for two important reasons.
First, if Brexit means competing on the global stage through newly-negotiated bilateral trade deals, British goods—and British manufacturers—will need to appeal to buyers in these new markets.
Second, at this stage it would be premature to assume continued tariff-free access to the single market. Post-Brexit, no one yet knows if that can happen or not. And with Europe’s leaders continuing to insist that such access depends on freedom of movement, the signs are not promising.
The importance of investment
Put another way, it has rarely been more important for UK manufacturing to remain fully invested in cutting-edge production facilities and information technology.
During the last recession, UK manufacturing’s performance was creditable in this respect: budgets were trimmed, but not slashed.
With economists now predicting another recession by the end of the year, and with zero growth forecast for 2017, UK manufacturing needs to keep its nerve and continue to invest in its future.
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