Before the EU referendum, debate raged about what the impact would be of a Leave vote. We previously discussed some of the arguments for and against Britain staying in the EU from a trade prospective. Now the majority of the country has backed Brexit, have the predictions – including the government’s cautions about an economic shock – come to pass from an international trade perspective?
What has the immediate effect been for the Manufacturing industry?
Recently Prodware attended the Greater Manchester Chamber of Commerce International Trade forum. Discussions centred on their QES (quarterly economic survey) which is a real time tracker that captures the health of the UK economy. This indicated that there was a “Brexit shock” in manufacturing and services in Q3 of 2016 which slowed down expected growth from the beginning of the year. Manufacturing as a whole appeared to be stagnating towards the end on 2016, although there are still areas of growth in sub-sectors such as construction and transport, which doubled its growth in Q4 of 2016. Manufacturing as a sector is more globally exposed as the UK operates a negative trade balance (import more than export) and therefore will always be more affected across the board by currency fluctuations moving forward.
However there has been a positive start to 2017. At the start of Q1 2017 order books so far are showing a bounce back in manufacturing and showing stronger growth in export markets. In the 2016 Autumn statement, there was a budgeted investment announcement of £4.9m in R&D – which will also positively impact pharmaceuticals manufacturing.
Brexit: What does the future hold for UK International Trade?
Looking forward as negotiations are set to last several years, what can organisations expect? In 2015, 44% of the UK’s goods and services were exported to the EU, while 53% of our imports came to the UK from the EU. As roughly half of all UK trade is with non-EU countries it is argued that Brexit will accelerate the growth of this trade by enabling the UK to strike its own trade deals with the world’s largest and most vibrant economies. However the UK cannot formally negotiate new trade agreements until it has ceased to be a member of the EU. Potential partners are unlikely to engage until the shape of an UK-EU trade agreement is known, since this will have a significant impact on what the UK can offer other countries.
Four issues will be key for the UK in 2017: to what extent, if at all, it stays in the Customs Union; how it manages the EU’s existing Free Trade Agreements (FTAs); which countries and which sectors it prioritises in negotiating new trade agreements; and what tariffs it sets at the World Trade Organisation (WTO). Each creates substantial risks and opportunities for UK businesses.
In each of these areas the UK government faces a complex array of options. These will require trade-offs between different sectors and interests in the UK e.g. between goods and services, consumers and business, farmers and manufacturers, and exporters and importers.
Many businesses and industry associations have already grasped the need to identify where their interests lie in the negotiations on the future UK and EU relationship. While this remains the priority, it is also vital for those trading outside the EU to do the same. In a study conducted by the British Chamber of Commerce in which 1,474 businesses were surveyed, it was found that over one third (36%) of respondents plan on putting more resources into exporting to the European market over the next five years. A further 34% said they have no plans to change their approach to selling into Europe, and only 4% said they are looking to put fewer resources into selling to the region.
Dr Adam Marshall Director General, British Chambers of Commerce states, “These results are an important reminder of the fact that it is businesses that trade, not governments. Although the likely outcome of the Brexit negotiations remains unclear, businesses still see Europe as a primary market for both selling and sourcing inputs – even after the UK leaves the EU…UK firms want tariffs, costly non-tariff barriers, and product standards to be at the top of the government’s agenda for a future EU trade deal. The best news from this survey is that the EU referendum outcome has sparked a greater interest in foreign markets for a significant number of firms. For that very reason, UK companies need sustained, tangible and practical export support that helps them get their goods and services out to the world.”
Manufacturers should analyse their priorities for exports, imports, supply chains and investment. Businesses that get this right, stand to mitigate any disruption caused by Brexit and to seize potentially significant opportunities. Manufacturers and distributors must maintain their own supply chain management and ensure that their business can flex according to the wider environment in terms of regulations and processes.
As a Microsoft Gold Partner, Prodware helps many international trade businesses like our own in multi-site, multi-currency processes with future-proof business management ERP software such as Microsoft Dynamics NAV and Microsoft Dynamics 365 for Operations. Talk to us today about ensuring your supply chain is strong and flexible moving forward.READ MORE MANUFACTURING BLOGS