What Would the Impact of a No-Deal Brexit Be on Manufacturing?

With just under a month to go until Britain is due to leave the EU, and no real sign of the government’s deal being agreed on by a majority in parliament, there is understandably great concern amongst various sectors about the impact that leaving on the 29th March without a deal in place would have.

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The Bank of England has repeatedly warned that no-deal could send the economy into recession, with business leaders warning it could cost hundreds of thousands of jobs, and retailers now suggesting that consumers could face significantly higher prices for basic foods.

If no-deal happens, then the UK will become a global outsider (in trade terms a ‘third country’), quite literally overnight. This will have a severe and negative impact on the manufacturing sector.

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Supply Chains and JIT

Many in the manufacturing industry rely on raw materials arriving just-in-time from suppliers around the world, and a significant amount come from the EU. Any interruption to this process would have a costly impact on all businesses in the manufacturing sector.

A no-deal scenario is highly likely to see the reintroduction of customs checks, import duties and tariffs for goods travelling from Europe (and the rest of the world) into the UK. Many of the procedures that will be required in this scenario are not even known, and the extra financial and regulatory burden together with the additional time needed for goods to cross borders could potentially make just-in-time supply impossible.

Tariffs

Once we leave the EU, all companies based here will have to pay tariffs on the vast majority of goods they are sending to customers in the EU. Manufacturers will have to pay these and then decide whether they absorb the cost themselves or pass them on to their customers – both options will mean a hit to their finances.

The manufacturing sector will also be hit hard by a drop in the value of the pound, higher inflation, higher costs, recruitment difficulties (due to the immediate ending of freedom of movement) and any negative impact to transport infrastructures.

 

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