“With Brexit approaching, it is more important than ever that manufacturers plan ahead. Understanding how individual risk factors might affect their business model is critical and the degree of risk exposure will vary from business to business. Business leaders must take ownership of the situation and prepare a bespoke Brexit plan to support them through the changes that lie ahead.”
Caroline Milton – Manufacturing Sector Advisor
How tough could things get?
Without a clear understanding of how individual risk factors might affect their business model, small and medium-sized manufacturing businesses are in danger of doing nothing and facing the consequences. Without the resources to invest in accurate business forecasting and modelling systems, it can be hard enough knowing what next month’s figures will look like, let alone planning further ahead at a time of Brexit uncertainty.
It is possible that the long and relatively benign lead up to Brexit may have caused a lack of focus on forward planning and for some manufacturers, the low value of the pound has provided a welcome distraction in the form of an uplift in profits. However, without any certainty about how the current Brexit plan will fare and the nature of any transitional arrangements, it is becoming clear that trading relationships with European customers and suppliers are unlikely to remain the same. Regardless of whether Brexit is hard or soft, SME manufacturers are bound to be impacted – it’s just a question of how much.
So how is your manufacturing business going to cope in a post-Brexit UK?
Brexit contingency planning – is it happening?
After months of waiting, the Government recently published a draft Brexit plan, setting out its proposals for a post-Brexit relationship between Britain and the EU. The plan contains a detailed draft Withdrawal Agreement governing Britain’s divorce from Brussels.
Endorsed by the EU, the plan calls for an ‘ambitious, wide-ranging and balanced economic partnership’ between Britain and the EU after Brexit. However, the plan is subject to parliamentary approval and is unlikely to achieve this in its current form. It is also possible that further political instability could derail Brexit.
Still lacking any definite information about what future trading relationships with the EU might look like after Brexit, businesses should continue to plan ahead based on a range of potential scenarios.
The fact that the UK exported goods and services totalling £274bn to the EU in 2017 shows the level of investment that British businesses have in this marketplace. Furthermore, with over two million EU workers currently living and working in the UK, businesses are concerned they could lose access to this sizeable employment resource in the future as well as face short term challenges over identifying EU citizens’ rights to work in the short term.
Statements made by some large, European corporates, such as Airbus and JLR, about how they might react in the event of a hard Brexit (by cutting jobs in the UK) have heightened concerns that current levels of trading activity and labour skills flow between the UK and Europe could be in jeopardy. Even more worryingly, the European Commission has advised European companies to think twice before using UK suppliers after Brexit.
The UK Government’s decision to publish a series of technical notices in the second half of 2018, spelling out what action may need to be taken in the event of a hard Brexit, has accentuated fears of a worst-case scenario. Most UK-based SME manufacturers know that they must do something to prepare now, but with so much political uncertainty, there is still a lack of urgency and understanding about where to start.
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