Manufacturers in UK worried over new trading relationship with EU

Suban Abdulla
·4-min read

Concerns over the new trading relationship between Britain and the European Union (EU) have clouded the outlook for manufacturers as they enter 2021.

According to a new study by manufacturing group Make UK and accounting firm PwC, manufacturers have expressed fears over the attractiveness of the UK for both investment and talent moving forward.

The survey shows that a third of firms believe the investment prospects for UK businesses will decrease having left the EU with just 18% of companies believing they will increase.

Additionally, 26% think exports to the EU will fall, while just 16% believe they will increase.

A third of respondents also feel that Britain’s ability to attract international talent will decrease with just 11% believing the UK will be a more attractive destination outside the bloc.

Make UK says that this potentially hinders the government’s new immigration system which is specifically designed to encourage the best talent to come to the country.

But, despite the worries over the new trading relationship with the EU and the attractiveness of the UK almost 48% of companies see a significant or moderate improvement for manufacturing in 2021.

This is in contrast to how they see the prospects for the UK economy. 56% of firms expect the economy to deteriorate, while 46% are more negative about the prospects for the global economy.

The research indicates that 47% of companies see customs delays as the biggest risk while concerns over national and local lockdowns were the second biggest risk (46%).

Meanwhile, increased costs of regulation is reported as the biggest risk by 39% while over one in 10 firms (14%) also believe a relocation of a major customer out of the UK is their biggest risk.

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“The transition to new trading arrangements with the EU was always going to be the biggest challenge facing manufacturers this year and the fact we have an agreement in place doesn’t alter that,” Make UK Chief Executive, Stephen Phipson, said.

Phipson added that “just as the sector rose to the challenge of aiding the national effort at the start of the pandemic, it is clearly set to do so again as we re-build the economy and take advantage of the opportunities from digital technologies.”

More than half (51%) believe the opportunities outweigh the risks to their businesses compared with 27% who believe the risks are greater.

As a result, after the falls in 2020 in response to COVID-19, recruitment is forecast to pick up — with 44% of firms expected to increase staff numbers compared to 25% who are planning to reduce headcount.

The survey of 206 manufacturers also provides encouraging indicators on the strategies manufacturers are adopting to build resilience and agility into their business by investing in people, new products, markets and technologies.

While controlling costs remains the biggest priority for companies, 57% of companies are investing in new product development with a similar number also planning capital investment, indicating a significant commitment to digital technologies.

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A quarter of manufacturers are looking to re-shore overseas activities while 25% are looking to identify new or additional suppliers in Britain as a high priority.

People also feature highly on company strategies with 44% committed to training and 37% investing in apprenticeships despite the difficulties caused by the pandemic. Because of these investments 54% of firms expect to see an increase in their productivity this year.

The UK’s exit from the EU has also encouraged companies to seek novel export opportunities in fresh markets, to diversify their trade income streams and build in further resilience to future crises.

Almost a third of companies (30%) are planning to enter new markets in 2021.

This will see the UK’s trade patterns shift for while they are predicting exports to the EU will fall, almost 40% of companies are looking to expand sales into non-EU markets with increases to Asia (27%) and the United States (28%) the biggest targets.

Cara Haffey, PwC UK’s manufacturing and automotive leader, said: “The EU trade deal, taken alongside the positive progress with both COVID-19 vaccines, will give business leaders the confidence to start planning for the future with greater clarity.

“While the need to protect supply chains and boost export products has hit the headlines, the services and maintenance trade that supports this has barely been touched upon. With as many as four in five UK firms either developing or already delivering an enhanced service offering to their clients, it’s crucial businesses are able to swiftly respond to our new relationship with the EU, especially relating to people movement, if they are to remain competitive in an increasingly customer focused global stage.”