Brexit Choices 2

Last week , we looked at the potential economic impact of Brexit upon the retail industry. Today, we conclude our article with some thoughts on how manufacturing and logistics in general could be affected by a “Vote Leave” campaign.

Manufacturing

Most, if not all, of the factors we discussed in relation to retail are equally relevant to manufacturing. However, there are some further sector-specific issues to consider.

The most obvious is manufacturing sales and employment associated with exports to the EU. Though “Leave” campaigners claim that exports to the rest of the world will replace those assumed to be lost to the EU, the hypothesis is based on the premise that such non-EU exports are being suppressed by UK membership of the EU, predicated on the idea the UK can negotiate more favourable tariffs on its own. This may or may not be the case, though as 50% of UK exports go to the EU, it’s a lot of new markets and customers to find - consider the old business adage: it’s much easier to lose existing customers than to win new ones’.

On the trade question, it is argued that we could adopt the position of Norway and Switzerland, both in general terms and with respect to trading with the EU. This is an astonishing argument – comparing the UK (in EU exit mode) with the richest country in Europe, its 4m souls still benefiting from oil and a country whose wealth came largely from creating a post-war banking sector, originally secretive. Quite simply, neither look anything like the UK and, given the role of the immigration issue in the popular Brexit vote, adopting N/CH status wouldn’t be acceptable.

The Brexit arguments around regulation are directionally sound: it’s almost a mathematical truism that regulation gets more complicated the more players are involved and simpler in reverse. But it doesn’t mean the argument has much weight – regulation is not binary: it won’t stop existing and, to trade with Europe, existing EU standard’s will be required (‘standards’ often being the whole point of regulation). We also think the negative impact of regulation is over-estimated. It’s like playing football in the rain – it’s not as much fun, but you’ve still got to play the match, and you still want to win!

Again, it is the uncertainty around investment, particularly foreign investment, that cannot be ignored. Less regulation – particularly in banking and services – could allow the UK to become a hedge against intra-Europe risk, particularly if Brexit looks like creating further fractures. A weaker pound may also help investment in general and investment in export-based sectors specifically. But any investor will take a ‘wait and see’ view: any positive impact is 18 months away.

Logistics

Much of this blog is the result of synthesising items on the internet with the authors views. Interestingly – and surprisingly – there is not a single accessible web article on the direct impact of this referendum on the UK logistics industry, perhaps underlining that the main effect is via the wider impact on UK plc. So we offer a few suggestions:

  • The price of fuel will go up if sterling falls.
  • Paperwork for EU exporting, and possibly rules concerning vehicles could get worse. This will not happen straight away and may be offset by the UK’s ability to limit the advantages EU vehicles currently have.
  • There is a driver shortage in the UK (one statistic discovered recently is that the average age of a UK driver is an astonishing 55 years old!) - EU immigration should have helped solve this in the past, but probably hasn’t had much effect to date, so little will change.
  • Volumes will go down – at least in the short term - if one accepts the argument that reduced EU trade will be replaced with China, the US and the British Empire. And even if one believes this, it will be shipping replacing road.
  • Cost of vehicles. Largely made abroad – lower sterling; higher prices.

In many spheres – and in the long term – the arguments on both sides are close, but – equally – the risks of forecast error for the long term are high. Long term uncertainty in general and the more certain short term negative economic impacts are compelling reasons for passivity. As they say in Yorkshire, ‘if it ain’t [that] broke, don’t fix it’.

But perhaps best not to consider what some members of the public recently interviewed on Radio 4’s Today programme believed – that if we don’t like Brexit, we can hop back in. It’s not like going into the garden in the sun, knowing you can retreat inside the moment it rains!

Good luck – may the best man/woman win!