London - Brexit will have significant adverse effects on a UK manufacturing sector highly integrated with the EU single market, warns a new report by UK in a Changing Europe.
The study, titled ‘Manufacturing and Brexit’ reviews evidence on EU-departure on the UK manufacturing sector, finds the impact will be disruptive and negative. The extent of disruption depends on the outcome of the UK-EU negotiations.
A worst-case scenario, it said, would be a no-deal Brexit, as this would introduce delays at the UK-EU border and add costs and disrupt tightly interwoven supply chains.
“Manufacturing will be negatively impacted, and some sectors, such as volume automotive production will particular badly affected, just as they are trying to recover from the slump caused by Covid-19,” the report forecast.
Few manufacturers have found any benefits from Brexit even if a deal and many are worried about the UK falling out of common EU regulations.
If UK and EU technical, safety, and other regulations are not aligned, manufacturers will have to make and test 0products to different specifications for the UK and EU markets, said UK in a Changing Europe.
UK companies are also concerned about the cost of tariffs, customs declarations, certifications, audits, loss of R&D collaboration, border delays, EU customers switching to other suppliers and visa costs for EU workers.
Nearly half of all goods imports and exports come from or go to the EU and many UK manufacturers depend on frictionless trade with the EU to maintain efficient supply chains, the report continued.
Another big challenge for manufacturing is uncertainty around Brexit which, combined with Covid-19, is making it difficult for businesses to prepare for the post-Brexit business environment.
“Industry does not know how data protection will work, whether and how they will still be able to employ EU staff for short periods of time, how state support for manufacturers will function, and so on,” said the study.
“Deal or no deal, Brexit will impact on the UK and its economy, commented professor Anand Menon, director of UK in a Changing Europe commented in a 24 June press release.
“It is important to understand just what form that impact might take,” said Menon “As this report shows all too clearly, for manufacturing it is likely to be negative and significant.”
For prof David Bailey, senior fellow of UK in a Changing Europe, a no trade-deal scenario is seen as the worst-case scenario for sectors like automotive given the impact of tariffs.
But, he added, even a minimal ‘free trade agreement’ could bring disruption for manufacturers, for example via its impact on supply chains and in terms of regulatory divergence.
Bailey concluded: “Whatever the form of Brexit at the end of the transition period, manufacturing faces multiple challenges in terms of recovering from the impact of Covid-19, transforming towards carbon net-zero, and embracing Industry 4.0.
“A more place-based and devolved industrial policy could be one way of helping manufacturing meet such challenges.”