What Brexit means for the manufacturing industry

Jul 06, 2016

UK – British voters really said last week (by a 52-48 margin) that they wanted to leave the European Union. Although it’s likely that the UK will maintain some form of free trade agreement with the EU, the exact details of such an arrangement are unclear, but international payments and currency risk are likely to increase in this separated scenario.

According to the Institute of Chartered Accountants in England and Wales (ICAEW) , even larger manufacturers - including Nestlé, Airbus UK and Nissan - stated prior to the referendum that a vote to leave would be cause to reconsider their UK operations. But uncertainty remains the biggest problem with Brexit.

Speaking on Friday morning after the referendum result came through, Manufacturing Technologies Association CEO James Selka said: “Like the rest of country MTA members will have been engrossed in the referendum over the last few weeks. The MTA took a position, based on the views of our members, of supporting the UK’s remaining within the EU. But now that the decision has been reached, we have to work hard to protect the future of the UK’s manufacturing technologies sector.

Maintaining access to the single market is of paramount importance, something widely agreed on across the political spectrum. Great care must be taken during the negotiation process to protect manufacturing’s interests and we will be working hard in the UK and in Brussels for that outcome.

We believe that we can leverage UK manufacturing’s reputation for innovation and flexibility to secure the best possible deal for our members outside the EU.”

Stephen Cooper, head of Industrial Manufacturing at KPMG UK, said that given the significance of trade with Europe and trade agreements negotiated through the EU, there are significant implications for the supply chain, such as the application of tariffs

“The possibility that many manufacturers feared has come true. So what next for manufacturing businesses in dealing with the manifold implications of the exit vote? Just picking up on three areas: Given the significance of trade with Europe and trade agreements negotiated through the EU, there are significant implications for the supply chain, such as the application of tariffs. Ensuring a full understanding of the supply chain past Tier 1 suppliers and beyond is vital to assess potential actions required. Our recent report on the sector revealed that just 13% of global respondents have “complete” visibility past their Tier 1 suppliers and into their Tier 2 so this may not be as straightforward as some might hope.

“On the jobs front, there are very real implications to the access to engineering talent. Manufacturers will need to consider their strategy. Firstly in retaining their non-UK workforce, secondly in attracting non-UK based expertise and thirdly, more long term and one for the government to support, in developing talent on a much greater scale than they do currently.

“Investment decisions, both FDI and of UK origin, whether put on hold waiting for this vote or in the ‘normal’ course of business, will need to be reappraised. Whether manufacturers will choose to locate or develop their operations in the UK, with the possibility of tariffs in place, remains to be seen and will likely be dependent on the upcoming negotiations with Europe. Once again Government action will be important to help ensure we remain an attractive location to invest both in manufacturing and other key contributors such as science and technology.

Opportunities for manufacturers?
“We should not lose sight of the fact that this result can also lead to opportunities for manufacturers; a drop in the value of sterling could make the UK a magnet for trade, and the need to reshape trade policy may result in quicker decision making, and reduced red tape.

“Of course we are only day one after the vote and the full implications will only become clearer with the passage of time – a considered approach to the emerging position is required rather any ‘knee jerk reaction’. Organisations will need to consider the tactical, short terms implications, particularly relating to market volatility and the impact on trading. However, the importance of maintaining a focus on the longer-term planning whilst in the midst of a tactical response is paramount.”

Source: ETMM Online