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Comment #4

07 January, 2020

Since the new government took office there has been a clear ratcheting up of no deal rhetoric. While the Government’s preparations to date are welcome, the unprecedented nature of Brexit means some consequences cannot be mitigated in advance.

The previous postponements gave some companies, particularly SMEs, more time to work on plans they were unable to complete by March 29th, such as making regulatory applications to EU agencies.

However, more firms have experienced a drop in export orders this quarter as Brexit fears lead foreign customers to source goods from elsewhere that they previously bought from UK producers.

As our latest Manufacturing Outlook demonstrates, there has consequently been a clear weakening in the performance of firms, particularly in terms of output, investment, and employment intentions.

If manufacturers stockpiling hadn’t artificially boosted output in Q1 the economy would already have entered negative growth for the year. As it is, the Bank of England has warned that crippling uncertainty and slowing international trade suggest we have a one-in-three chance of plunging into recession by the start of 2020 anyway, regardless of what now happens with Brexit.

Sterling fell 10% following the 2016 referendum but then stabilised. Recently the pound has begun sliding again, down a further 7% since May.

Lower Sterling makes some UK exports more competitive, but British manufacturers import lots of their inputs so if the depreciations of 2008 and 2016 are any guide, the main effect will be increased inflation – something we’re now beginning to see.

Indeed, as our survey shows, export prices have been cut but so have export orders, signalling that foreign customers are choosing not to buy as many UK goods as before even though they’re now cheaper – down 6% since last quarter.

The number of vacancies has been dropping since the start of the year. There are now 126,000 fewer people (net) employed in manufacturing jobs today than there were at the time of the Brexit referendum in June 2016. These statistics are proof our sector is undeniably on a downward trajectory.

In every region, companies are cutting back on investment in transport equipment, factory machinery, and IT, just at the point in the economic cycle when spending would normally increase. This reflects declining confidence ahead of a potential a crash out Brexit coinciding with worrying global trade conditions.

The clock has now almost run down and as we leave the EU, Brexit really could not have come at a worse time for manufacturers.

*First published in PWE Magazine 

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