Brexit and the Future of Manufacturing: What do Manufacturers Think?

Brexit is weighing on everyone’s minds, especially with March 2019’s cut-off date fast approaching and the uncertainty it has brought to the industry. Manufacturers are amongst those affected by this uncertainty and left wondering what will happen once the UK leaves the European Union.

Current State of the Manufacturing Industry

By August of 2018, UK manufacturing growth hit a 25-month low due to Brexit fears; now, research conducted by business advisers BDO LLP shows that lack of clarity when it comes to trading relationships caused a weakening of confidence within manufacturing, a sector which accounts for 8% of all jobs in the country; this confidence among manufacturers has now descended to a 16-month low. Job vacancies are becoming more difficult to fill, as well – a shortage driven by a falling interest among EU nationals to work in the UK.

The same confidence issue can be found among manufacturing businesses, including Dean Group. I believe there are pockets of companies that are fairly busy, but the majority are treading water, with growth falling behind Europe and the rest of the world. The problem is confidence in the market running up to and after March. Should we invest, or should we wait until after Brexit when we know more?

The automotive sector appears to already be seeing the effects of the climate of uncertainty, as well as the possibility of a hard Brexit. With the recent news of 1,400 British jobs at risk after two European car parts suppliers, Schaeffler and Michelin, announced they would be closing UK factories in the next couple of years, it’s clear that this is a massive blow to the automotive industry ahead of Brexit.

Using the UK as a base for exporting to the EU, Japanese car manufacturer Nissan rely on being able to import millions of components quickly every single day, without customs delays or tariffs. However, in the event of a no-deal Brexit, the country may have to trade with EU countries on World Trade Organisation rules, which applies 4.5% tariffs to car parts and 10% to finished vehicles. It doesn’t come as a surprise, therefore, that many big companies in the automotive sector are thinking of moving their operations from the UK.

With big UK manufacturers cutting jobs due to Brexit uncertainty, the manufacturing industry is facing a tough time; the only solution appears to be finalising Brexit and ending the uncertainty that’s been permeating all sectors of the industry.

Brexit and the Future of Manufacturing

I’m not entirely sure how Brexit will really impact the manufacturing industry, because the agreed deal hasn’t been passed yet, and a hard Brexit is still a possibility because of that. When it comes to the cut-off date itself, extending it beyond March 2019 would only make sense if it were a predetermined short delay to get a better deal. Otherwise, an extension would likely lead to prolonged uncertainty and lack of investment, which would only cause the manufacturing industry to fall further behind the competition.

This means that some businesses would have to decide whether to relocate out of the country regardless, as they would not be able to afford to keep on losing market share and profits.

In the event of no deal, it’s important to consider that trade will change significantly. There will likely be financial tariffs, trading barriers and trade time delays, which will have an immediate and long-term damaging effect on the economy.

Some large blue-chip companies in the Northwest will probably close or downsize and move their facilities to mainland Europe – this means that all of the local supporting supplier base will be significantly affected. Some manufacturers’ customers may become uncompetitive in some of their existing markets, which will depress manufacturing in the UK.

I also believe there could be significant job loss and, seeing as a lot of manufacturing jobs require the expertise of highly skilled people that have trained for many years, it would be very difficult to get them back. The UK could even lose the manufacturing ability to support the country’s defence requirements and have to rely more on foreign powers, which would weaken our strategic ability to defend our national security.

Trade is perhaps the most important issue highlighted in the Brexit discussion. It’s impossible to know for sure the nature of trade deals after March 2019 and how they’ll impact the industry and manufacturers. However, it’s fair to say that, if there are no barriers or financial tariffs when it comes to trading with Europe, then the manufacturing industry will likely have a brighter future.

Christopher Dean is the Chairman at Dean Group, a UK-based investment casting company that is also a UK supplier which sources, manufactures and sells British products.