Could Brexit spell a revival for the UK manufacturing sector?

A Perfect Storm

Could Brexit spell a revival for UK manufacturing?

Whilst the London fat cats might be trembling in their boots over Brexit, UK manufacturers shouldn’t be. The fallout from our EU divorce could provide the perfect conditions for us to become global leaders in production once again.

Turn back the clock to May 2016, and who would have expected us to be where we are now? We’ve certainly experienced a rough ride since the outcome of the referendum on 24 June 2016. Add to this the turbulence that followed after an equally unexpected general election vote, and it is little wonder so many businesses have remained on tenterhooks in contemplation of a future that seems so uncertain.

But whilst Bremoaners have been quick to focus on the negatives, a review of our position since the Brexit vote reveals a different picture. The UK economy grew by 1.8% in 2016, second only to Germany's 1.9% among the world's G7 leading industrialised nations i. Official figures also show that in 2017, British factories notched up the longest run of expansion for at least two decades, with December seeing producers of investment goods experiencing the sharpest increase in orders since 1994. Employment too, is at an all-time high. In September, the ONS reported that 75.3% of the UK population is now in employment, the highest number since records began in 1971.

So, with Brexit negotiations now underway, isn’t it time we focussed on how Brexit may actually help, rather than hinder the British manufacturing industry?

Leaving the single market

EU membership has been a great benefit to the manufacturing industry, giving us a trade agreement that allows tariff-free access for imports and exports throughout the single market. However, unless the UK can forge new trade agreements, we could see the application of tariffs that will make our exports less appealing and imports more expensive. This would mean the cost of imported goods would rise for UK customers (as the tariffs would be added to the selling price) but on the plus side, could see our 65 million inhabitants move towards buying more British-made products, opening up new opportunities for manufacturing in the UK.

Adopting a world trade model is being viewed as the preferable way forward. A report by the Economists for free trade – based on the trade and macro models of the Cardiff University Macroeconomics Research Group – shows the UK adoption of global free trade would create an additional long-term GDP gain of 4% for the UK and a fall of 8% in consumer prices compared to remaining in the Single Market. Additionally, this 4% GDP gain does not include any benefits gained from other aspects of leaving the EU such as decreased regulation and no longer having to contribute to the EU budget, which would also work in our favour.

More opportunity to export outside the EU

Whilst 43% of Britain’s exports go to the EU (£240bn out of £550bn) the remaining 57% are already being exported elsewhere in the world ii and our exports to the EU have been on a continual decline since 2009. The UK had a trade deficit of £82 billion with the EU in 2016 but a surplus of £39 billion with non-EU countries iii.

The rise and progression of developing countries has also meant that the EU’s share of the world’s economy has been continually falling, with China now taking first place. Representatives from the UK manufacturing sector have argued that Brexit will provide greater flexibility for UK businesses to position themselves with lower-cost suppliers in countries like China, giving us a stronger competitive advantage.

Lower exchange rates will make us more appealing

The exchange rate against both the US dollar and the Euro has declined by an average of around 13% since the referendum result was announced iv, but this has not necessarily been a bad thing.

A weaker currency gives us greater global competitiveness as our exports become cheaper for overseas buyers who find that their money affords them greater purchasing power. In March 2017, British car manufacturing enjoyed its best month in 17 years fuelled by demand for vehicles from abroad v. 2016 also saw a return of cotton-spinning to the country for the first time in a generation. With rising salaries in Asia and increased shipping costs, textiles could be set to boom once again in the UK as it becomes more economical to manufacture on our own shores. In 2016, The Alliance Report stated that 5,000 new jobs had been created in the UK textile manufacturing sector in 2015 and that a further 15,000 new jobs could be created by 2020vi. The desire to ‘Buy British’ is also becoming an increasing trend, with an uplift in demand for UK products that have a strong British association. British branding, authenticity and the tradition of well-made products are seen as a mark of exclusivity, both overseas and in the UK.

With a year to go until we finally leave the EU, there are certainly a number of challenges we’ll still have to face. But by making the right investments in people, training and technology now we can strengthen both our workforce and our capabilities for what lies ahead.

Who knows where we’ll be in 10 years’ time? Hopefully we’ll be living in a leaner, stronger and more prosperous Britain, and one that’s found a renewed strength in manufacturing.




i https://www.theguardian.com/world/blog/2017/feb/23/germanys-gdp-shows-19-rise-over-last-year
ii https://fullfact.org/europe/uk-eu-trade/
iii https://researchbriefings.files.parliament.uk/documents/CBP-7851/CBP-7851.pdf
iv http://www.telegraph.co.uk/money/consumer-affairs/mapped-pound-has-fared-against-currencies-around-world-since/
v https://www.theguardian.com/business/2017/apr/27/uk-car-industry-has-its-best-month-in-17-years
vi http://www.telegraph.co.uk/business/2016/12/26/made-britain-will-brexit-spell-march-makers/



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