With the deadline for Brexit fast approaching, the question on many businesses lips is the following: how will leaving the EU affect our trade?
It’s been a rollercoaster ride up to this point, and there promises to be more drama as we approach the 31st of October deadline, but this article looks at Brexit from the new most-likely scenario: a no-deal Brexit. With this in mind, below will outline how the manufacturing industry is likely to change in the wake of Brexit, with tips to help you understand what this might mean for your business.
There is little doubt in industry circles and within the financial community that Brexit will see the UK undergo a period of short-term instability, with a likely drop in the pound married with the fact that goods, services and materials will be more expensive to purchase if they originate from the EU – or if they are traded through a border with the EU.
For manufacturing, this means that any business that relies upon materials or parts from the EU is likely to see a complete change in their overheads, as tariffs and taxes hit them in the short-term during which no agreement or arrangement is made between the UK and its largest trading partner. In the longer-term, it is hoped, these reasons for instability will wane. The team at IG UK has created a timeline of political events FOREX trading patterns dating from 1989 to present-day to help businesses understand the relationship between political events and the economy.
Due to the drop in the pound that’s been happening for a few months and will certainly increase on ‘Brexit Day,’ there is one perhaps under-highlighted benefit for UK manufacturers: the export effect. Essentially, with a weaker currency, it makes more sense to buy from the UK – as products will be cheaper in real terms in the currencies of other countries. As such, we may see an exporting boom, if managed correctly by the authorities.
What this means for manufacturing is simple. If you’re producing products that are largely sold overseas, you may see an increase in interest as your product becomes more financially viable for international companies than their previous deal. This is one potential Brexit dividend for the manufacturing industry, and anyone familiar with this kind of economic switch should be watching the pound in the next couple of months.
Nonetheless, exporting and importing are going to be far more difficult in the post-Brexit era. Trade deals with new countries, such as the US, are expected to be brought in within a year, but that doesn’t negate the fact that for most businesses, there will be a period in which new regulations must be adhered to, and new trade protocols must be observed.
The government has for some time been suggesting that businesses should prepare for a no-deal Brexit, and so any manufacturing business should already be on top of the possibility of a radically changing business environment. For many manufacturing businesses, this might mean laying off staff, reducing production, or finding materials to buy from elsewhere. This preparation is crucial in order to ride the short-term wave of lower productivity following Brexit.
These insights should help any manufacturing business understand the road ahead as Brexit looms large over the UK economy.