UK manufacturing divided on Brexit implications

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Renishaw plc

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ETMM European Tool & Mould Making

Vero Software Limited

Current business outlook

Just over half of the BPF survey respondents expect to see an increase in turnover, but this is down from 63% six months earlier. And some suppliers saw manufacturers scale back their purchases even before the referendum.

Simon Lee is regional director at Vero Software, which sells CAD CAM applications to tool and mould making companies across the UK, Europe, Asia and the US. “The UK market has been a little flat for us this year and I am now wondering if there was a bit of pre-referendum tension which halted investment,” he told ETMM. “Certainly, if you compare our other markets – France, Germany and Italy, for example – they have been performing better this year. Investment tends to be higher when people are confident about the future.”

The Engineering Employers Federation (EEF) estimates that almost half of UK manufacturers send over 25% of their products to customers in the other 27 EU member states. Most (80%) of its members had either not seen much change to orders or enquiries immediately after the referendum, or simply felt it was too soon to make any concrete judgement. Their expectations for the end of the year are better defined, however, with many anticipating declining orders from both UK and EU customers, though some still expect increased sales to non-EU markets.

Weaker pound positive and negative

The post-referendum 10-15% fall in the value of sterling was widely expected to prove beneficial to UK manufacturers in reducing the price of their exports. And 40% of those surveyed by the BPF did anticipate an increase in export sales as a result. But the cost of raw materials processes also made them less optimistic about their profitability, and 13% said they would cease investment altogether.

The survey of over 400 manufacturers conducted by the EEF also saw the weakness of the pound as both a positive and negative, with 75% seeing exchange rate volatility as a business risk partially due to rising input costs.

Only 10% of Vero Software’s business comes from UK sales, and a weaker pound has helped to lower the cost of the CAD CAM applications it sells to tool and mould making companies in Europe, Asia and the US. Of the UK business, 25% of Vero’s customers are companies engaged in mould and die making, mostly linked to the automotive industry.

UK engineering company Renishaw makes machine tool probes and software, fixtures and machine calibration and optimisation products. The vast majority (95%) of its turnover also comes from outside of the UK and like other manufacturers it relies heavily on the automotive and aerospace industries for business. But Renishaw is partially exposed to currency fluctuations with respect to the euro, the US dollar and the yen – meaning it will not benefit from a weaker pound as much as might be expected.

UK tool and mould makers need skilled engineers, resources that remain in globally short supply. Almost two thirds (62%) of EEF member companies recognised the benefit of having the freedom to recruit staff with hard-to-find skills from other countries.

British firms may find it even harder to find staff should Brexit mean that the UK leaves the EFTA and no longer supports freedom of movement of people across its borders, however.

“Definitely the thorniest of all the negotiation issues is migration,” said EEF chief economist, Lee Copley, who called for a new UK immigration policy that would allow manufacturers to access the workers needed to plug the gap.

UK companies may now review their recruitment and investment plans and some doubt EU companies will want to keep their supply chain within Europe. “It is apparent that investment plans are being reconsidered or put on hold as we go through a period of political restructuring and unknown economic risks,” commented Columbia Metals’ Stephenson.

Renishaw said it would “most likely” face higher costs and additional regulation due to Brexit. But chairman and chief executive David McMurtry insisted that it would continue to invest in research and development and infrastructure, and recruit skilled staff whilst monitoring business sentiment and investment levels to see if changes need to be made.

Only one in six EEF members thought that Brexit would lower the regulatory burden for manufacturing. Most think EU rules will simply be replaced by UK equivalents. Lee does not expect any significant change in the admin overhead, pointing out that manufacturers will have to comply with EU import laws anyway.

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