New Make UK/Squire
Patton Boggs research shows 64% of manufacturers say Brexit delay and
uncertainty has slashed profits in last two years.
Almost half have
already seen a negative change in EU customer/supplier appetite for doing
business with them.
New research
published by Make UK, the
manufacturers’ organisation, and Squire Patton Boggs, the global law firm,
shows that 64% of manufacturers have taken a financial hit during the last two
years as they struggle to prepare for an unknown trading environment
post-Brexit.
Key findings
include:
- 64% of manufacturers cite
Brexit delay and uncertainty as having had a negative impact on their
company’s profit margin in last two years
- Nearly half have already
experienced a noticeably negative change in EU customer/supplier appetite
towards doing business with them
- 76% of manufacturers feel
that a no-deal Brexit would have a negative impact on the appetite of
their EU customers/suppliers to do business with them
- 73% of manufacturers believe
proposed zero-tariff plan would result in additional costs for their
business vs just 3% who predict a cost saving
- Two thirds of manufacturers
experiencing increased tariff costs would pass on all or some of that cost
to customers
- Fewer than 30% of UK
manufacturers have applied to government for a customs special procedure
to help with cash flow or mitigate against import duties
Businesses have
already had to make a costly U-turn in the run up to 29 March 2019, when
stockpiling activities reached the highest level ever recorded in the G7.
Demand for warehousing space rocketed by an unprecedented 32%. 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.
According to the
survey 76% of manufacturers said that a no-deal Brexit would be disastrous to
their businesses, with a negative impact on the appetite of both EU customers
and suppliers to do business with them. Some 60% 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% of companies saying it would bring about a cost hike for their
businesses. The scheme would see 87% of imports by value eligible for
zero-tariff access to the UK compared to the 80% which are already tariff free.
Just 3% of companies think they will see a saving from the new regime in the
event of a no-deal Brexit.
As the default
leaving date of October 31st looms,
less than a third of manufacturers have prepared for the new customs processes
which would come into force in the event of no deal.
The survey further
showed that while nearly two-thirds (64.1%) of respondents understood that
changes would be introduced to product labelling, fewer than half have taken
any steps to enable them to comply with the new rules which will allow them to
continue to trade with the EU.
Commenting, Stephen
Phipson, Chief Executive at Make UK, said the 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," he continued. " 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.”
Jeremy Cape, partner
in the Brexit team at Squire Patton Boggs, added: “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.
“Whilst it is
impossible to know the macroeconomic consequences of a no-deal Brexit, it is
vital that UK manufacturers do what they can to be fully prepared. It is clear
from the research findings in this report that many companies have not planned
anything like as fully as they should. No one likes to spend time and money
preparing for outcomes that may not occur, but the impact of a no-deal Brexit –
in October, January or later - is such that a small investment in preparation
is critical.”
