It is now almost three months since the referendum and the UK's decision on Brexit so what does this looks like to the manufacturing industry and what has been the impact so far?
After what we all now recognise as a knee-jerk reaction seen in across the FTSE and the initial drop in sterling we are starting to see a stabilisation which we expect to last at least until article 50 is invoked. In the electronics manufacturing sector we were expecting a slowing as a result of predicted uncertainty however what we have seen to date has been very different.
To start with we recognised that, due to the shock, no-one really quite knew what to do, so as a result we have seen the majority carry on as usual!! After all we weren’t expecting a slowdown had the remain camp won plus all the contracts and orders that were placed before the referendum were still in place so carry on we have!
The impact of exchange rate drop and a weak pound became evident very quickly. It is extremely rare for electronic components such as resistors and IC’s to be manufactured in the UK so in no time at all components prices were affected and we were hit with unexpected price increases. This is very challenging time for manufacturers, budget prices set 12 months ago were overnight subject to a 20% to 30% increase and margins in an already tight market are being squeezed hard. It doesn’t stop there this has also created an additional administration burden for purchasing teams to push back and establish which increases are real and which are opportunist and in some significant cases research what other options are available.
The wider impact of monitoring project budgets is now far more critical and certainly time is of the essence to assess the extent of any losses and put strategies in place manage and/or recover losses. Sales teams and project managers are having to work far harder to hit those targets but it is not all bad news. They say every cloud has a silver lining and there is no doubt that the drop in exchange rate has produced an export boost for the electronics sector. This, in our experience, doesn’t appear to be linked to any one sector we have seen it across the board from medical to aerospace. We’ve seen sales increase for new business, more new business with existing customers, this is particularly good news because it means that companies are investing in new products for extended growth, however, this is still very early days and these project are in final stages anyway. But the best news of all is the increase in demand for current orders. Clearly the weaker pound isn’t all bad.
We have had a very positive few months, and we are not alone, much of the electronics sector has experienced the same positive impact and it would appear that the South is doing particularly well. Whilst we expect this to continue for a period I do have concerns regarding the impact of invoking article 50 not just with the "shorter term" obvious issues such as the logistics and time frames of negotiating trade agreements, and the inevitable prolonged level of uncertainty but also the more broader long term effects of which I am concerned about at least 3.
Firstly the issue of legislation and standards, the burden of regulation compliance on business is already a significant one. As a contract manufacturer of companies shipping goods all over the world we already comply with and maintain regulatory standards that are not only industry specific but territory specific. For the UK to maintain it's competitive edge it is thought, at least in the Medical sector that the MHRA will follow suit from Europe and adopt their polices, which sadly we shall have no influence over. What will happen in reality? I guess we shall just have to wait and see.
My second concern is the loss of EU funding for research and innovation and our access to influence and participate in collaborative research projects. It is no secret that we receive more in funding than we put in and my fear is that the UK's reputation for world leading design and innovation could be damaged and we could be at risk of playing catch up if we aren’t extremely careful.
My final concern is our ability to attract enough engineers into our businesses, the government and a number of charities are already doing some good work to push the STEM subjects and encourage our young people to consider careers in engineering and technology but will we hit the targets we need? Losing our ability to attract and hire talent from our closest neighbours could be an additional blow to our sector.
Despite my concerns one thing I have taken away from the referendum and which was a surprise to me (other than the result) is the power and influence that the UK has, I believe we all underestimated our value. On June 29th 2016 the British people made a decision, and the world shook!! Clearly the UK is a force to be reckoned with and we continue to punch way above our weight you only have to look at our Olympic and Para Olympic results to see that, so despite my reservations I look forward to working in the manufacturing sector as, yet again, the UK makes history.Laura McBrown
IoD Surrey Manufacturing Ambassador