A summer of change and an autumn of uncertainty for the manufacturing sector
PUBLISHED: 09:53 10 October 2016
Chris Mould is a partner in the corporate audit and advisory team at the Cheltenham office of national audit, tax and advisory firm Crowe Clark Whitehill. He focuses on owner-managed businesses, both in the UK and internationally, covering sectors including manufacturing, engineering, retail and pharmaceuticals. We asked him to do a bit of crystal ball gazing
As 2016 draws to a close, it will go down in history for a number of reasons. The US election race, the new Prime Minister, the Labour leadership contest, the Rio Olympic and Paralympic Games and, of course, the vote on 23 June in favour of the UK leaving the European Union.
After the initial uncertainty in the summer following the decision to leave the EU, what does the future look like now for the manufacturing sector?
The Autumn Statement should help to provide some clarity on the future of our economy and the direction in which we are heading.
The manufacturing sector tends to mirror the general feeling of the UK people and so will be hoping for a period of high confidence.
Up to now, confidence has wavered due to uncertainties in the marketplace. Those who want to see the glass half empty can interpret the figures to suit their agenda, as can those who are positive about the long-term future for the UK. Our destiny is in our own hands.
The volatility of exchange rates, and the political merry-go-round in Westminster has, to some extent, made the position look worse. However, manufacturing businesses are benefitting from cheaper exports, thanks to the exchange rate, which is certainly helping right now.
In the summer, Lee Hopley, chief economist at the EEF, the manufacturers’ organisation, said: “The Brexit vote has put the manufacturing sector’s recovery in jeopardy.”
In the short-term, it is hard to disagree with this. However, the Bank of England’s decision to drop the base interest rate should, to a certain extent, control inflation and assist UK manufacturers to maintain their cost base over the next few years.
Longer term, the manufacturing sector are likely to be in a much better place, without the constraints and costs associated with being a member of the EU.
Manufacturers are concerned that once the two year withdrawal process is triggered, we will enter a further period of uncertainty until it is finalised.
They have expressed uncertainty about availability of funding, which has traditionally come out of the EU pot. However, Chancellor Philip Hammond in August encouraged businesses to continue to bid for EU funds, assuring them that structural and investment funds signed before the Autumn Statement would be fully funded beyond the UK’s departure from the EU. This is a short-term fix to keep the sector alive during the exit process.
While businesses will no doubt be thankful that the EU regulations and red tape that come with any funding will eventually disappear, many manufacturers have relied on the availability of finance and grants and access to European funding.
The longer term issue is what will be put in place when EU funding options are no longer available. It is this uncertainty which could delay investment decisions. The Government has a huge part to play in this to minimise the concerns of the manufacturing sector.
It may mean a bumpy ride now, but in the long-term leaving the EU could provide freedom and increased flexibility for manufacturing businesses across the UK. Let’s not forget that the UK manufacturing sector is vital, not just for the UK but for the world economy, and it has the skills to adapt and remain competitive in this changing environment.
The short-term cautious approach seems to be the favoured way to deal with immediate uncertainty but always with an eye on the longer term opportunities.
The summer of 2016 will remain a defining period in UK history. Our job now is to work together to ensure the manufacturing sector remains strong through the exit process and is in good shape to take advantage of the new opportunities.