What will happen to UK manufacturing after Brexit?

19th September 2018

What will happen to UK manufacturing after Brexit?

If there is any benefit to British industry from the UK’s departure from the EU, it will be for those companies whose products have a high degree of local content.

The exchange rate changes that followed the referendum result made imported materials and components more expensive, and our actual departure is likely to exacerbate this, at least in the short term. The upside is obviously that our exports will be worth more, so any exporting company that makes products in the UK, with locally sourced materials, will be sitting pretty. 

Sadly, when you look at where our materials and components come from, there are relatively few companies that will gain major benefits from this apparently rosy picture. This is clearly illustrated by the often-quoted example of the crankshaft from the Mini range. Initially cast in France, the part then goes to Warwickshire, where it is machined. It then goes off to Munich to be fitted to an engine, which is then shipped to Oxford and put into a car. Not only does this illustrate the global nature of modern manufacture, it also underlines the extent to which British industry depends on imported parts.

In terms of primary materials, the UK makes very little these days. The remains of our steel industry focusses on high value specialist sections, with standard sheet and section materials coming in from abroad. Plastics and other standard manufacturing materials, as well as many engineering components are also usually sourced from Europe or Asia.

So, will the post-EU British manufacturing economy depend on exporting wooden garden furniture and leather belts? Not quite.

One of the major strengths of the UK manufacturing sector has always been its ability to use innovation and design to create successful products. These qualities will be even more important in the future and should enable companies to add significant value to imported materials and components to create profitable products – and jobs. Conventional areas of high-tech manufacture like aerospace, scientific instruments, audio equipment and medical devices are all possible sources of development and growth. The commitment of the Labour party to make a major investment in renewable energy sources is also a potentially exciting development. It offers the UK an opportunity to combine our scientific ability with manufacturing innovation to create genuinely useful, profitable products for both industrial and domestic markets.

It will be interesting to see if whichever party is in power once we’ve left the EU will reverse decades of manufacturing decline and support these new industries or simply follow the post-war model of backing financial services as the main driver of the economy. On the basis of past performance, holding your breath is not recommended.

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