The Impact of Brexit on UK Manufacturing

The UK manufacturing market is on a strong growth trajectory, with an industry growth of 2.1% per year between 2015 and 2020, and over $757.6bn revenue generated per year. The UK positions itself as a leading manufacturing nation and global leader in hi-tech sectors including digital and AI, automotive and aerospace.

Manufacturing in the UK accounts for around 45% of exports, in addition to over 65% of private sector R&D spending in the country. Prior to the withdrawal of UK from the European Union (EU) on 31st January 2020, the manufacturing industry in the UK saw a 0.7% growth on average per year between 2015 and 2020. There was also the addition of over 2m new employees to the sector, making it the 13th ranked sector for growth prior to Brexit in the UK. Many parallel industries in the UK also heavily rely on manufacturing, such as industrial R&D and service employment within industrial machinery. UK manufacturing accounts for around 20% of the overall economy and 25% of employment in the country.

UK manufacturing is also closely linked with EU, accounting for over 50% of imports and exports, with strong interation with other sectors such as automotive and technology. Taking this information into account, its unsurprising the impact of Brexit in early 2020 on the UK’s manufacturing sector. The UKs Office for National Statistics (ONS) report in March 2020 that exports between the UK and EU fall by a massive 40.7% in January of 2020 alone, in addition to a decreased in imports by 28.8% during this period.

However, the UK-EU Brexit Trade and Cooperation Agreement (TCA), which came into effect on 1st January 2021 has been largely welcomed by manufacturers in the industry. The removal of tariffs for manufacturers between the UK and EU has a largely positive effect, allowing free-trade movement independent of the need for quotas, much to the benefit of manufacturers. The withdrawal of the UK from the EU can also provide a much-needed boost the manufacturing market, through removal of the $8m EU ceiling on the amount companies can raise from individual investors with the generation of a prospectus, which would allow a much more free-flowing market.

There are additionally many benefits to companies outside the UK seeking entry to the UK manufacturing market. Outside of the EU customs union, the UK can sign its own trade agreement, the first of which was signed with Japan in October 2020. This agreement, as the first of its kind, allows for improved market access for Japanese companies to enter the UK market, including manufacturing in small and medium enterprises (SMEs). This deal also sets the standards for the UK to make similar free-trade deals, with the potential for improved market access from not only East Asian countries but across the globe.

Written by:
Anna Cranston

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