Survey shows manufacturers profits hit by Brexit uncertainty

Published:  16 October, 2019

New research recently published by Make UK, the manufacturers’ organisation, and Squire Patton Boggs, the global law firm, shows that 64% of manufacturers have taken a financial hit during the last two years as they struggle to prepare for an unknown trading environment post-Brexit.

Businesses have already had to make a costly U-turn in the run up to 29 March 2019, when stockpiling activities reached the highest level ever recorded in the G7. Demand for warehousing space rocketed by an unprecedented 32%. This surge was followed by an inevitable slump and since then almost half of companies have seen a noticeable negative change in EU customer and supplier appetite to do business with them because of continued uncertainty.

According to the survey 76% of manufacturers said that a no-deal Brexit would be disastrous to their businesses, with a negative impact on the appetite of both EU customers and suppliers to do business with them. Some 60% of manufacturers would increase product prices and a third would cut staff.

The government’s proposed zero tariff plan in the event of no-deal was also viewed negatively with 73% of companies saying it would bring about a cost hike for their businesses. The scheme would see 87% of imports by value eligible for zero-tariff access to the UK compared to the 80% which are already tariff free. Just 3% of companies think they will see a saving from the new regime in the event of a no-deal Brexit.

As the default leaving date of October 31st looms, less than a third of manufacturers have prepared for the new customs processes which would come into force in the event of no deal.

The survey further showed that while nearly two-thirds (64.1%) of respondents understood that changes would be introduced to product labelling, fewer than half have taken any steps to enable them to comply with the new rules which will allow them to continue to trade with the EU.

Commenting, Stephen Phipson, chief executive at Make UK, said:

“Today’s research must serve as a wake-up call to Government – business needs clarity and stability going forward, but that does not mean leaving the EU at any cost.

“No deal would leave manufacturing facing tariffs on the import of goods and just in time delivery logistics would become inoperable. Furthermore, business would be unable to access the people to ensure British companies can fill vacancies where they have skills gaps or, send workers to the EU for service contracts and other commercial opportunities.

“We must also see a commitment to maintain mutually recognised, close regulatory alignment with the EU, supported by a system of arbitration and standard setting to ensure that British firms can produce goods that can easily be traded across Europe with clear protections in place.

“We have already seen major companies voting with their feet and taking their planned business operations away from the UK while many businesses are losing out on new contracts with EU customers because of the uncertain future trading arrangements. This is only going to get worse until a deal with a sensible transition period is agreed.”

Jeremy Cape, partner in the Brexit team at Squire Patton Boggs, added:

“A no-deal Brexit presents huge challenges to the UK’s manufacturing sector and the immediate implications for businesses in terms of cost and disruption will be serious. In particular, it is widely expected that many manufacturing businesses, particularly those that rely on just-in-time supply chains within the EU and those who may be impacted by the imposition of new tariffs, may scale back or close their UK operations.

“Whilst it is impossible to know the macroeconomic consequences of a no-deal Brexit, it is vital that UK manufacturers do what they can to be fully prepared. It is clear from the research findings in this report that many companies have not planned anything like as fully as they should. No one likes to spend time and money preparing for outcomes that may not occur, but the impact of a no-deal Brexit – in October, January or later - is such that a small investment in preparation is critical.”

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