Amongst all the political posturing, it has been hard for UK and international manufacturers to understand what Brexit actually means for trading and investment in the UK. Graham Carberry, Managing Director at Arrowpoint Advisory, explores the immediate and long-term implications.
The sky hasn't fallen
So far, Brexit is having less impact on UK manufacturing than on other sectors, for a clutch of reasons.
- The decline in the value of sterling has made UK exporters immediately more cost-competitive. While this has been tempered by the rising cost of raw materials coming from outside the UK, the overall impact has been resoundingly positive for many;
- There is increasing recognition that the UK is a significant net importer of manufactured goods from the mainland. Therefore it seems less likely that the EU will seek tariffs in this area than in sectors such as Financial Services;
- The UK has been on a path of reducing dependency on European trade for some time. This, coupled with the sluggish growth across the EU may mean that Brexit causes the UK to accelerate its focus on global markets and should therefore derail few manufacturers' international growth strategies; and
- Beyond Brexit the UK could possess a far greater ability to invest in and support key technical manufacturing industries (without running into state-aid issues) and greater flexibility in certain areas of tax.
Not without risk
The most obvious potential Brexit concerns for UK manufacturers relate to regulation and labour. Were our standards and those of the EU to diverge following Brexit, this could impact the UK innovation environment by increasing the cost and the time scales for new product launches.
Another issue that has already raised its head is the position of international manufacturers who have invested in the UK. Original Equipment Manufacturers (OEMs) would find any decision to move production extremely difficult due to the capital cost of doing so, as well as the significant and potentially politicised impact on sales in the UK, which remains Europe's largest market for new cars.
Business as usual?
It isn't quite business as usual for the UK manufacturing sector, but M&A and investment within and into the sector has far from dried up. Within our own practice we continue to see strong interest in investing in UK manufacturing from both major global corporations and domestic and international private equity investors. The recent acquisition of Nu Instruments by NYSE-listed AMETEK, Inc. is an excellent example of this trend since Brexit. Nu manufactures state of the art magnetic sector mass spectrometers and the purchase by AMETEK will significantly enhance Nu's ability to sell their industry-leading instrumentation globally.
Furthermore, Markit/Cips September's results survey found UK Manufacturing rose to the highest level since mid 2014.
Alongside technological convergence, new manufacturing and automation technologies are emerging, and global demand for high performance manufactured products is growing. The UK's Intellectual Property (IP) development, productivity enhancement and development of the key skills required to adopt and utilise these technologies effectively, will remain the primary challenge and the key to the future success of UK manufacturing.
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