Brexit uncertainty impedes manufacturing industry growth

27 February 2019 4 min. read
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Almost two-thirds of UK manufacturers expect that the unknown quantity of Brexit will see their business subjected to “chaos” in the coming year. The sector has already been hit by a fluctuating exchange rate and reduced access to continental workers, but manufacturers evidently fear that worse could be coming for an industry which has also seen major declines in demand over the last year.

Despite a perpetually changing economic landscape, manufacturing remains a keystone industry in the UK. Optimism in the industry has been riding high in recent years, reflecting the perceived potential of automotive technologies, but last year saw a slight dip in business performance, ahead of what seems set to be a turbulent period for British manufacturing. Ordinarily, the sector might have expected to recover its footing relatively quickly, but with the looming spectre of Brexit making the economy’s future completely uncertain, this has not been the case.

As the UK Government looks to reduce immigration from the EU by as much as 80% after Brexit, around the same percentage of manufacturers are already reporting a shortage in labour. With an ageing population and high employment meaning competition for talent is high, UK manufacturers stand to be hit hard by the proposed post-Brexit immigration policy. Meanwhile, the UK endured a 7% fall in car sales throughout 2018, which will have severe consequences for the industry’s supply chain – including its manufacturers – in the near future.

Brexit planning

Indeed, amid this climate of fear, UK manufacturers have told analysts from Hennik Research and PwC that the lack of certainty ahead of the 29th March Brexit resolution deadline is severely impacting their ability to plan for the future. The Annual Manufacturing Report 2019 subsequently warns that the key issues keeping UK manufacturers awake at night are the Government’s handling of Brexit, a national shortage of technical skills and a lack of public awareness of the importance of manufacturing.

In order to reach this conclusion, PwC examined a sample of UK-wide manufacturing companies with up to 1,000-plus employees and annual sales ranging from £2 million to over £250 million. Of those firms, 65% said they anticipated “chaos” for their businesses over the next 12 months, relating to Brexit. On top of that, another 71% said the uncertainty created by Brexit had resulted in strategic planning being made difficult, and that this was already damaging their business prospects.

Brexit outlook

Of those polled, only around 30% of respondents said that the state of play had either not changed anything, or had strengthened their position. Only 7% of respondents said they strongly agreed that Brexit would benefit them from a legal and regulatory perspective. One thing that can always be guaranteed about economic uncertainty is that there are companies in any crisis which will use the disruption to their advantage, so it is not surprising that this minority exists. However, for the wider sector and the thousands of workers in its employ, the current state of play spells trouble.

Technology key

Similarly, only 9% of firms in the sector believe that manufacturing growth will receive a boost from Brexit. To an extent, it already has, in that economic growth in the UK was buoyed by the lower value of the pound, which incentivised global investors to buy British products at bargain prices – however that activity cooled dramatically over the course of 2018, and looking to the future, the largest portion of 26% of manufacturers now expect that growth will be shunted into chaos by Brexit.Business enabler

According to PwC’s UK industrial manufacturing & automotive leader Cara Haffey, however, there is more than just Brexit uncertainty at stake here. She explained that many manufacturers were still reluctant to invest in new technologies which could transform their businesses, and that this could well be the difference for them in looking to insulate themselves from the turbulent economics of the coming year. Despite this, respondents were relatively evenly split on the degree to which digital technology could really drive growth and open up new markets.

Haffey added, “The main blockers appear to be a lack of coherent digital strategies and the inability for organisations to understand what practical applications some of these technologies offer within their organisation. If UK firms are to capitalise on the benefits of smart factories, a clear strategy and strong leadership from top management is vital.”