Warnings from the Confederation of British Industry bring worries for not only the manufacturing sector but the business world also. Manufacturing accounts for nearly 50% of the total imports and exports into the country, but its importance is not just directly for the sector, but the UK economy as a whole. Does Brexit have the power to dent the industry? There are definitely contrasting views on this.
According to CBI former leader, Paul Drechsler, the government must act to ensure Britain ends up with a ‘real frictionless trade’ or risk parts of the manufacturing industry heading to extinction. The areas that are most at risk from this are Birmingham, Coventry and Durham as these are largely reliant on manufacturing.
In an interview for BBC Radio 4’s Today programme, Drechsler stated: “ If we do not have a customs union, there are sectors of [the] manufacturing society in the UK which risk becoming extinct. Be in no doubt, that is the reality.”
Due to the uncertainties of the upcoming Brexit deal (delivery expected in autumn), Drechsler believes that potential investors are going to other marketplaces. Blame he places on the government who are still yet to provide the businesses with the essential clarity needed for investment decisions, and the Brexiters who have not supported their claims that alternative trade deals with other countries will offer the economic growth they expect.
“We still haven’t got clarity about the future direction, about where we’re heading, what the future relationship with Europe will be, at a level of detail that matters for investment.”
These sentiments support the thoughts of CBI’s director general, Carolyn Fairburn, who recently advised business leaders to tell their local MPs about the job losses they face as a consequence of leaving the EU without a good customs deal.
Despite this, the Department for Exiting the EU insisted the government is “focused on delivering a Brexit that works for the whole of the UK”.
Who’s at risk? Drechsler believes the car industry, in particular, is vulnerable due to its time-sensitive production method and reliance on EU-supported supply chains.
All in all, manufacturers are looking at the high possibility of higher costs, with tariffs on imported goods from the EU (desirable in the automotive sector) likely to be negatively impacted. Stricter policies between borders will impart longer waits for essential products of the supply chain, and rise associated costs with the transportation, storage and admin needed for these materials. Rising costs for many could lead to financial difficulties.
It’s not only the automotive business leaders who would suffer either, as 800,000 people employed in this industry could also face difficulties in a post-Brexit world.
Yet, there are thoughts that Brexit could increase the levels of competition between manufacturing companies, raising the nation’s output and thus provide ample opportunities for profitability (especially for those are Brexit-ready). Whilst all the roads may point to a negative outcome, there is some light at the end of the tunnel. The increasing possibility of a soft Brexit deal, which is not out of the realms of possibility, could boost profits for both the UK and EU, and should they both decide to levy tariffs, the impact on the industry would not be as great as currently envisioned. In addition, should alternative trade deals with other countries materialise, the opportunities for the sector could be exponential.
Understandably, many in the industry are wondering how manufacturing will fair against the Brexit storm. Regardless of the result of negotiations, Brexit is sure to have a huge influence on the future of manufacturing. Cost reduction advice from procurement specialists will prove to be an invaluable asset as business leaders navigate what this change means for their business, sector and economy.
Get in touch with our experts to see how we can help your organisation today.