Vital need for a post-Brexit UK manufacturing plan

Posted on 31 Oct 2016 by Jonny Williamson

The recent GDP figures demonstrate the urgency of a blueprint for post-Brexit UK manufacturing, says Martin Hurworth – managing director of Harvey Water Softeners.

Last week, we got our first real indication of how the UK economy has fared since the EU referendum, courtesy of The ONS and its third-quarter GDP data.

Martin Hurworth, managing direcotr, Harvey Water Softeners.
Martin Hurworth, managing director, Harvey Water Softeners.

The headline figure is that the economy overall continued to grow, with an increase of 0.5%, showing an underlying resilience in the face of uncertainty; albeit at a slower rate than the 0.7% reported in the previous quarter.

According to the Chancellor, Britain is now on track to have the fastest growing economy in the G7 by the end of 2016. Fears about a recession seem, so far, to have been unfounded.

However, such optimism has to be tempered by the fact that manufacturing fell by 1% during the last quarter, as well as the wider question that the vote to leave has raised about what a successful manufacturer should look like in a post-Brexit Britain.

To answer that, first we need to dig deeper into ONS’ figures. The data suggests that the sharp fall in sterling – down 14.4% in September compared to the same period last year – has quickly fed through to export and import prices.

When import costs rise, it doesn’t take long for that to feed through to the cost of exports, especially for businesses who deal with plenty of both. For those companies that export their goods in foreign currency, the pinch was probably felt even faster.

Higher prices squeezed UK manufacturing during the third-quarter, shrinking its output and leaving it trailing behind other sectors like services, agriculture and construction. The higher the product value and the more intensive the export process, the harder these prices have hit.

Reshored competitiveness 

But what’s bad for one is almost always good for another. So while automotive manufacturers and drugs companies may be feeling the pain from higher prices, other exporters which have a majority of their production process based in-house, or at least in the UK, are benefiting.

Firms who ‘reshored’ production during recent years are now perfectly positioned to take advantage of a weaker pound and export to the world. This new position of strength that they find themselves in is a direct consequence of the referendum result.

These are the businesses we need to be doing more to help; firms which design and make things here using local supply chains, selling to domestic markets and exporting to the EU and beyond. They’re on the up, despite the lastest GDP figures being down.

Becoming more competitive by buying less from abroad is great, if you can do it, but many firms simply don’t have that luxury. Similarly, employing more skilled workers from the UK instead of employing migrant workers is only an option if the workforce is there to fill the jobs.

Domestic skill

As last week’s announcement about Heathrow has shown, the UK needs more skilled workers to deliver the many infrastructure projects now being brought forward by government, and the same is true for manufacturers. With unemployment nearing record lows, that begs the question; if not from abroad then where?

Outlining a template for a future successful UK manufacturing sector isn’t possible without addressing the elephant in the room; Article 50. The fact that by the government’s timetable we’ll be outside the EU by April 2019 at the latest means there isn’t a moment to lose for manufacturers keen to prepare themselves early to use it to their advantage.

Yes. we need big, bold action from the Prime Minister and the ‘Three Brexiteers’ if we want more companies like Nissan to stay and invest here. Measures to address this in November’s Autumn Statement will be a vital. However, SMEs within UK manufacturing have to be positioning themselves today in order prosper beyond Brexit tomorrow.