Unsurprisingly, Brexit sentiment from UK manufacturers has dropped to its lowest level in 18 months. The paralysis of uncertainty; the lack of time to secure a deal; and the possibility of a cliff-edge no deal result has seen optimism slip significantly.
Two thirds of all manufacturers expect the impact of the UK’s exit from the EU to be negative when it hits. This has dropped by 43 per cent since Sept 2018 and is the most pessimistic sector when compared to financial services, technology, media and telecoms (TMT), construction and consumer.
So, why are manufacturers more negative than other industries? It boils down to trade. It’s hard to be confident, or even plan effectively, when you have no visibility of future trading conditions. This inability to make decisions is affecting all aspects of business.
Almost half of the respondents believe a no-deal outcome would be catastrophic or harmful for manufacturers; so, every day that ticks by without a resolution, the majority of manufacturers get more fearful - despite avoiding a no deal scenario being the only thing parliament can agree on at the moment.
Looking to the future, manufacturers are still negative; this perception differs to other sectors who are more likely that to believe conditions will be more positive. This could be due to the reputational impact that the sector feels Brexit has had on trade and investment already – highlighting that the economic turnaround for the industry could be slower than other sectors.
Leaving the EU will allow the UK to negotiate new trade agreements with other countries but if we look at recent history, negotiating a deal takes time. Trading turbulence acutely impacts manufacturers so it’s not surprising to see a more downbeat view in the longer term.
Interestingly, only 14 per cent of manufacturers believe that the US protectionist trade policies would have a greater risk to their business, despite rhetoric about forging new trading agreements with the US as a priority post-Brexit. Brexit poses a much greater risk as the majority of UK manufacturers see Europe as their primary market – it just comes down to geography. If you look at the history of the world, you trade, or buy from, your nearest partners and that’s what UK manufactures have done well. Many have expanded into other jurisdictions, but the EU remains a key market.
This could explain why two thirds of manufacturers would like a second referendum on the UK exit terms to ensure their voice is heard.
Despite pessimism, manufacturers are resilient and innovative, and whatever the outcome most will keep calm and carry on making; but what is clear is that manufacturers need clarity and a good trade agreement to ensure they mitigate any future risk and prosper in a post-Brexit world.
For further information, view RSM’s five-point plan on how to prepare for Brexit.