The Implications of Brexit on UK Manufacturing

Published: 14 June 2016

As the 23rd June fast approaches, the effects Brexit will have on the UK are being widely debated.  Almost all sectors will be impacted, in particular manufacturing and engineering.  

At a glance, it would appear that the general consensus is that if Britain leaves the EU, the manufacturing and engineering sector would hit a number of problems – perhaps the biggest one being trade.   The EU is Britain’s biggest trade partner, with more than half of our exports going to other EU countries.  If we do vote “out”, the relationships between our European trade partners could be frayed due to uncertainty – how accessible will the UK be?  Could the lift of EU regulations scupper negotiations?  How long will new trade agreements take to put in place? 

It would seem that even before a final outcome is decided the industry is already starting to feel effects caused by the ambiguity of the situation; the build up to a potential Brexit has seen a decrease in demand for UK manufacturers.  An article published by The Guardian this month noted that, “uncertainty over Britain’s membership of the EU is hitting a third of businesses in the UK Manufacturing sector, which barely scraped growth in May” and “foreign demand for goods from British factories fell for a fifth month”.  The industry group EEF found that, “output and orders in the manufacturing sector fell over the past three months”.  

However, it might not be all doom and gloom.  Whilst orders from European countries have dropped slightly, a number of them are currently dependent on products manufactured here, and this is unlikely to change immediately.  In addition, the levels of foreign direct investment from European firms in energy, manufacturing and transportation is relatively high, so one could argue that if Britain were to leave, the EU owned manufacturing firms would also suffer. It would therefore perhaps seem foolish of them to cut trade with Britain, regardless of the Brexit outcome.  A report compiled by the Woodford Fund would seem to support this view; they noted that “given the scale of trade interdependence between the United Kingdom and the European Union’s members and the advantages of maintaining a close commercial arrangement, there would be little to be gained on either side from hostile trade relations after Brexit”.  

All in all, it is most definitely an uncertain time for the UK’s manufacturing and engineering industry but there can perhaps be some comfort in the fact that there are many in the industry who wish to stay.  A survey carried out by CBI (The Confederation of British Industry) showed that 80% of its members would want to remain. Whilst there is the argument that Britain leaving will not make much difference to trade, it is risky to assume that other EU countries will remain open to dealing with manufacturers in the UK. This is certainly something to bear in mind as the referendum looms.  

Catherine Osman is a Researcher in the Manufacturing and Engineering Practice

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