Manufacturers take a financial blow over Brexit uncertainty

The majority of manufacturers have taken a financial hit during the last two years as they struggle to prepare for an unknown trading environment post-Brexit.

A European Union flag in front of Big Ben.
A European Union flag in front of Big Ben.

New research published today by Make UK, the manufacturers’ organisation, and law firm Squire Patton Boggs showed that 64 per cent of manufacturers cite Brexit delay and uncertainty as having had a negative impact on their company’s profit margin in the last two years.

Businesses have already had to make a costly U-turn in the run-up to March 29, 2019, when stockpiling activities reached the highest level ever recorded in the G7.

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Demand for warehousing space rocketed by an unprecedented 32 per cent.

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.

Stephen Phipson, inset, chief executive of 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.”

According to the survey, 76 per cent of manufacturers said that a no-deal Brexit would be negative to their businesses, with a negative impact on the appetite of both EU customers and suppliers to do business with them.

Some 60 per cent 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 per cent of companies saying it would bring about a cost hike for their businesses.

The scheme would see 87 per cent of imports by value eligible for zero-tariff access to the UK compared to the 80 per cent which are already tariff free.

Just 3 per cent of companies think they will see a saving from the new regime in the event of a no-deal Brexit.

Jeremy Cape, partner in the Brexit team at Squire Patton Boggs, said: “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.”