05 August 2016

The morning after

What will Brexit mean for UK manufacturing? Chris Beck investigates the results of an exclusive WM survey

We’ve all been there: stumbling around, bleary-eyed, early in the morning, wondering what on earth happened the night before. This is the situation the UK has found itself in following the country’s decision to leave the EU. Trouble is, this hangover can’t be cured with a couple of paracetamol and a bacon sandwich.

Pessimism still dominates

The Brexit decision has left the UK with more than just a sore head and a mild sense of confusion. An exclusive Works Management survey of almost 200 site managers has found that the industry, at least initially, is pessimistic following the verdict. More than 60% of our respondents admitted that their initial reaction to hearing the news was downcast.

“The UK has invested 40 years into being a part of the European Union,” said Margaret Wood, a member of the IET’s Manufacturing Policy Panel and managing director of ICW (UK) Ltd. “As a manufacturing nation, we have managed to adjust to everything that’s happened globally, and then we go and do this!”

However, despite an initial sense of despair, our survey showed collective calm over the industry’s future post-Brexit. Resilience runs high, with 31% saying the long-term impact would be positive, once the situation settles. Tellingly, 35% of respondents hedged their bets, saying it’s currently too early to say exactly what will happen in the aftermath of Brexit.

Simon Goulden, technical director of All-Fill International, was quick to emphasise, “Trade is about having advantageous goods and services which people wish to buy, and this will triumph over politics at every opportunity.”

Longer-term industry impact less clear

One area of concern for Wood of the IET is that as the country negotiates Brexit, SMEs may find themselves getting left behind. “[Former business secretary] Sajid Javid appointed a ‘tsar’ for the larger organisations,” she told us, “but it’s the smaller ones that really need the support to take us forward. This decision has sent shockwaves through the manufacturing and engineering sectors more than most.”

It also appears that there will be no mass abandonment of investment. Almost 40% of our respondents said their investment plans would not change as a result of the vote, and 8% even said they would feel a positive impact. Again, a more upbeat picture is painted by the impact on international trade, with 28% saying that their company would be better off on an international scale post-Brexit. “90% of our business is for export,” said Ron Scott, managing director of Eastern Petroleum Supplies. “And I can see no reason why this will alter downwards.”

To further highlight the hardy nature of the market, prior to the referendum, one of the manufacturing industry’s biggest names, Siemens, had threatened that a vote to leave the EU could affect the company’s investment into the country, in particular at a new £310 million turbine plant in Hull. However, the company were quick to reconsider, with chief executive Joe Kaeser insisting that the UK remained “a good place to do business” regardless of its position in the EU.

Immigration, immigration, immigration

It’s not all positivity, though. For many manufacturers, overseas workers form a valuable backbone of daily operations on the factory floor. There were fears amongst our respondents that this source of labour may dry up in the medium- to long-term.

“In the short-term, there is positive news,” said John Leech, head of automotive at KPMG. “In the medium-term, though, there’s more uncertainty. Freedom of movement is very important for manufacturers, and how challenges like that get resolved will affect the medium-term of the industry.”

Geoff Walker, operations director at Artesis LLP, sees even more issues with restrictions on free movement. “The single market is all about the four freedoms – free movement of goods, services, people and money,” he remarked. “It is ridiculous to think that we will be able to restrict movement of people without restricting the others. It’s such an intrinsic part of the single market.”

Wood, again, is bullish about the importance of migration to the industry. “We’ve built whole economies on free movement of labour,” she said. “There is concern about immigration, and that has to be listened to, but it can’t be used as a weapon of mass destruction against the manufacturing industry.”

The lack of access to overseas workers may be the reason behind over a fifth (22%) of respondents saying that the Brexit result will lead directly to job losses in their organisation in the next two years, with a further 35% saying they were uncertain of the impact. Of that 22%, 11% said that they would be looking to lay off 30% or more of their staff in that time.

However, the WM survey also revealed that 43% of companies would not be seeing any job losses. Garry Suter, production manager at Lintec Antennas, says the industry should look closer to home for its workers: “[Brexit] means we can get better standards in apprenticeships; we can inspire college students to try hard and put the pride back into the work they do.”

Looking to the future

The biggest challenge facing manufacturing, and the country as a whole, is what deal the UK will gain from the EU in any renegotiations. Again, what would constitute a ‘good deal’ split our respondents. Zach Witton, deputy chief economist at EEF, the manufacturers’ organisation, is adamant that “increasing investment, innovation and productivity must take precedence over deficit reduction.”

KPMG believe that the manufacturing industry can help shape the negotiations. “The automotive industry, for example, has a very large political weight,” explained John Leech. “Government enjoys associating with manufacturers as they are such a large exporter and therefore I believe that their voice will be more closely listened to than other sectors of the economy.”

Artesis’ Walker is equally pragmatic about the future. “As long as we have open doors, why would companies in the EU not want to sell here? People won’t stop selling into the UK until such time as we impose different tariff standards.”

The hangover after this particular night out is going to be long, sore and not for the faint-hearted. The impact of the Brexit decision on UK manufacturing will not be immediately obvious, but, as the WM survey demonstrates, the industry’s resilience should hold it in good stead in the long-run. That said, the results to our survey don’t lie – the industry is certainly in some turmoil, and as long as uncertainty over the terms of Brexit remain, the headaches will continue. Best get the aspirin ready…

Author
Chris Beck

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