Even though the British manufacturing sector is the ninth-largest in the world, Brexit has already had an impact and it could get even worse. Factories in Britain have suffered a sixth consecutive month in October showing fewer new orders thanks to the ongoing Brexit uncertainty. The industry is facing a tough future with weakened global demand for UK manufactured goods and employment issues.
According to an industry survey, Brexit has not only affected demand but also an increase in job losses. The survey was conducted before the announcement of the election which reflects two months of preparations for leaving the EU on 31 October. Of course, we all know what happened with that story.
Brexit Uncertainty Impacts The British Manufacturing Sector
Rob Dobson, a director at IHS Markit said that the high degree of uncertainty has hit two areas of British manufacturing particularly hard.
“The first is the trend in employment, as job losses resulting from disappointing sales are exacerbated by manufacturers implementing hiring freezes until the outlook clears. The second is the investment goods industry, where output and new orders are falling sharply as clients postpone capital spending plans.”
According to the Office for National Statistics, the biggest expansion in British manufacturing since the 2008 recession has been in the following sectors:
- transport equipment (trains, planes and ships)
- motor vehicles
- machinery repair
The sector has seen a massive decline in pharmaceuticals, machinery, printing and recorded media, basic and fabricated metals and metal products.
How Has Brexit Already Affected British Manufacturing?
Expecting the inevitable, UK Manufacturers have been stockpiling several raw materials and components leaving small to medium-sized companies with low cash reserves. April this year already saw a 4.1% drop in the British manufacturing sector as automakers cut back on their production.
Vauxhall, owned by French firm PSA, confirmed that they will stop production at their Ellesmere Port UK plant if Brexit goes through. Brexit dealt a further blow in May 2019 when Canadian aeroplane manufacturer, Bombardier, announced the sale of their Northern Ireland factories responsible for manufacturing aeroplane wings and fuselages.
UK manufacturers in the automotive, aerospace, pharmaceutical and plastics sectors have shown production cuts over the last six months. This has been in response to the threat of a no-deal Brexit. And more recently, AstraZeneca announced that they are increasing their stockpile of drugs by 20% to prepare for the uncertainty that Brexit holds.
The Honda Conundrum
Honda has also been impacted on a massive scale as they import 2 million components from Europe on 350 trucks every day. As a result of Honda’s ‘Just-in-Time (JiT)’ inventory system, Honda only has about one hour’s worth of stock at any given time.
They also informed lawmakers that if Brexit goes through that it would take 18 months to put in place proper customs administration. In addition, every 15 minutes of delay would cost the company £850,000.
Another shocking statistic is that 40% of the workers building the new Honda Civic in the UK are EU nationals. In the current structure, Brexit will restrict the free movement of workers which may result in a lack of skilled workers running the manufacturing plant and machinery.
What Does The Latest Brexit Deal Include?
Manufacturers across the country have expressed massive concern at leaving the EU under the current terms of the recent deal. This will potentially leave them with a fraction of the access to European markets which they currently have. Here is what Boris Johnson’s latest proposed deal to leave the European Union includes:
- The UK to have its own customs territory and set its own tariffs
- Agriculture and manufacturing standards will give the UK added flexibility while Northern Ireland will follow EU standards
- The UK will be able to diverge from the EU’s labour and environmental standards
- They can strike new trade agreements in goods and services
- The UK will have a free trade agreement with the EU on goods only, with minimal services and significant non-tariff barriers
What Does All This Mean?
If the UK adopts different standards to those of the EU, manufacturers might have to create two different versions of every product. That in itself is a major challenge to accept let alone overcome.
Tariffs and customs checks could also become a serious problem for British manufacturers who currently rely on seamlessly sourcing components and exporting goods. Many manufacturers might have to abandon entire product lines if the new tariffs make certain parts of products too expensive to import.
As stated by Rob Dobson: “With a further Brexit extension confirmed and the prospect of a December general election, it looks as if the spectre of uncertainty will cast its shadow over manufacturing for the remainder of 2019.”
Is There A Glimmer Of Hope For British Manufacturing?
There may be some good news among the bad as Jaguar Land Rover announced that they would build electric vehicles (EVs) in Britain. Even though it is undoubtedly positive news, economists have predicted an increase of only 0.8% in UK manufacturing output in 2019. Looking at 2020, this number could decrease to 0.6%.
In addition, there have been numerous claims that the Internet of Things (IoT), cloud computing and artificial intelligence (AI) could also help British manufacturing. While it’s certainly a highlight, preparing for Brexit surrounding all the uncertainty through digital transformation and investment in technology won’t solve the underlying problems.
Recommended Read: ‘UK Manufacturing: What The Future Holds’
As it stands now, 54% of all goods the UK imports come from the EU. At the same time, nearly half of all British goods are exported to the EU which consists of around 450 million people. If you consider all the countries with free trade agreements within the EU, 63% of all Britain’s goods are exported to EU members.
What are your thoughts on Brexit and how do you think it will impact the UK economy as a whole? Liked reading this article? Could the government have been better prepared in light of how the final decision could affect UK manufacturing companies?