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Will Brexit be the Last Straw for UK Engineering?

Posted by Tom Brown at 17 August 2017, 18:00 CET |
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Brexit is a potential disaster for UK engineering. 85% of Engineering Employers Federation members believe we should be in Europe, the world’s largest developed market, which buys nearly half our exports, and which is the only one we can serve economically with ‘Just in Time’ (JIT) delivery which is essential for many products.

An Inside View of UK Engineering's Decline and the Challenge of the Brexit EconomyIn a highly competitive environment tariffs would be very problematic. Few companies make investment decisions based on fluctuating exchange rates, but a permanent tariff of only 10% would render many UK engineering exports unviable.

Should we leave the EU customs union, paperwork is likely to increase greatly and extra time will probably be added into the logistics - a very significant handicap for JIT delivery where lead times are literally measured in hours.

We will still endeavour to export to the EU and so will have to continue adhering to EU product specifications, into which we will now have no say. If new UK regulations are drawn up, UK-based companies will have to adhere to both sets.

It is fanciful to believe that new trade deals with other countries will offset the potentially enormous loss of exports to Europe. In the EU we compete with comparable economies, but our new trading partners will be predominantly countries with much cheaper costs than us, facilitated by generally lower standards of human safety and environmental protection.

A country such as India is a big market for engineering products, but it has such a cost advantage that free trade seems certain to result in more imports into the UK. Many engineering companies already grasp the opportunities in such markets, but with local manufacturing. However most countries have extremely limited markets for advanced engineering products, whether or not we have trade deals with them.

Nor would it be feasible for modern engineering companies, which need to be exceedingly focused in their skills, technology, and capital equipment, to swiftly make alternative products, even if they could identify demands which they could address competitively.

The UK has successfully attracted foreign investment, for example the Japanese car manufacturers, but such companies manufacture here as a base for European sales; it would not be economic to establish a manufacturing plant just to serve the UK market, and so the UK will cease to be a favoured base for manufacturing. Nissan exports 80% of its UK production to the EU, and unless the Brexit deal includes free trade in cars and components the Japanese investment will probably cease over the following decade. And we shall see a precipitate fall in other new manufacturing projects once those already in the pipeline have run through.

Brexit will therefore impede our ability to export, exacerbating our already appalling trade deficit, and causing the loss of further high value jobs. Should we suffer a 'hard' Brexit, impairing half our export market without any near-term alternatives could lead to the outright closure of many UK-based engineering companies, which will not be viable without their export contribution.

Most of these problems will take years to show as there is a long lead time on procurement and investment plans; there is remarkable naivety about timescales, leading to misinterpretation of current investment announcements.

For engineering, Brexit should be as 'soft' as possible, retaining unfettered access to the single market and the customs union. At the time of writing it is quite unclear on what basis we will trade with the EU, but potentially Brexit is a disaster for UK-based engineering companies, which are likely to be particularly hard-hit.

Adapted from 'Tragedy and Challenge, An Inside View of UK Engineering's Decline and the Challenge of the Brexit Economy' by Tom Brown.

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Tom Brown

Tom Brown

Tom Brown has worked in engineering for 45 years in the UK and overseas, progressing from night shift manager to chairing 15 companies – ranging from stock market quoted, through private equity backed, to university spin offs.