How can UK manufacturers plan ahead given the current pre-Brexit uncertainty?

UK manuafacturer Port Talbot Steel worksIt has become fashionable in some quarters to downplay the importance of the UK’s manufacturing sector to our economy.

Yet the UK is the world’s eighth largest industrial nation, our manufacturing industry employs 2.6 million people and it contributes 11% of GVA (Gross Value Added as the measure of the value of goods and services produced in an area, industry or sector of an economy).

It accounts for 44% of total exports with SMEs doing particularly well representing 70% of business research and development (R&D) and providing 13% of business investment.

But no matter how innovative or agile, manufacturers still need a reasonable length of time to plan ahead as well as at least some degree of certainty.

Both of these seem to be in short supply at the moment.

What are the key challenges for UK manufacturers?

Manufacturing covers a wide range of products, from food to vehicles to machinery.

To keep their businesses healthy all manufacturers need to be aware of their competition, both at home and overseas.

A major concern is the control of cash flow, particularly costs, both payroll and raw materials or, if they are part of a supply chain, the costs of the components or ingredients manufacturers need to complete their part of the process.

In the run-up to leaving the EU, however, these issues have been far from straightforward.  Imported materials prices have risen because of the reduction in the value of £Sterling against other currencies, causing problems for the steel industry, for example.

Then there is the long-standing skills shortage, particularly for trained engineers, construction workers and even for low-skilled workers needed to pick and pack produce from farms, most of which have relied on EU workers. Already, we have seen the numbers of EU migrants reduced substantially over the uncertainty about their status post-Brexit. This has already threatened levels of manufacturing output.

While the Government would doubtless argue that this is in part being addressed by its Apprenticeship levy, the BCC (British Chambers of Commerce) has recently criticised the scheme’s implementation as unfit for purpose, noting that there has been a 24% drop in the numbers starting apprenticeships. In any case, it will take time before people are sufficiently well-skilled to be introduced into the workforce.

Equally, with the UK at near-full employment there is a question mark over whether there are even enough unskilled workers available.

It has been argued that adopting the latest technology and automation is the answer.  However, in some sectors, for a manufacturer to re-equip a factory needs considerable time for planning and to raise the finance, and again, the need for skilled people competent to run and maintain an automated production line. It is a big investment decision and one that understandably manufacturers are likely to be wary of in the current uncertainty.

Which brings us to the other dominant and vexed question of the moment and that is the as-yet undecided situation on tariffs, the customs union and the single market or completely free trade.

While remaining in the customs union with the EU after Brexit would protect exporters from tariffs it would also prevent them from reaching agreements with countries outside the EU. Completely free trade brings its own risks as to whether there is sufficient demand for UK products outside the EU. And then there is the potential loss of EU trade and most likely higher costs from tariffs.

Despite all these concerns, we are told that SMEs have been particularly successful in export markets over the last year or so. It is not, however, clear what impact this has had on overall volume.

Whether this will continue will depend heavily on the outcome of the negotiations over Brexit and the eventual agreements that are made.

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