Out-Law / Your Daily Need-To-Know

Manufactuers' uncertainty rises as expert warns risks will be hard to avoid

Out-Law News | 08 Jan 2019 | 9:16 am | 2 min. read

Brexit is the biggest source of uncertainty for three quarters of the UK’s manufacturing sector, according to the results of the annual survey carried out by manufacturers’ organisation the EEF. The survey shows a drop in confidence about the economy and significant concern about the impact of Brexit.

Around 72% of respondents said Brexit was their biggest source of uncertainty, while only 6% were more optimistic about global economic conditions than last year. Around half the manufacturers surveyed said they saw more risk than opportunity in the global economy, with a quarter seeing more opportunity than risk.

Major risks identified included exchange rate volatility, weaker sterling, delays at customs and cyber-security.

Over four-fifths of companies said significant currency movement was a risk to their business plan, and three-quarters said the impact of a weaker sterling bringing upward pressure on input costs was also a risk.

A similar proportion (76%) said delays at customs would be a risk for their business, and this was the most significant risk for a third of respondents. Almost half of the manufacturers said a relocation of a major customer away from the UK was a source of risk, and one third of these relocations were directly related to Brexit.

Brexit expert Clare Francis of Pinsent Masons, the law firm behind Out-Law.com, said the survey showed that companies continued to be concerned about the impact of Brexit, as exit date on 29 March grew closer and ahead of the parliamentary vote on the withdrawal agreement between the UK and EU.

“Ultimately the uncertainty continues but against a ticking clock as the deadline looms ever closer.  With the vote now expected to happen next week businesses will be eager to obtain certainty,” Francis said.

Francis said the transition period agreed as part of the exit deal would help businesses, but noted that this would only happen if the UK parliament voted to support the agreement.

“This provides a pause button rather than increased long term certainty as the withdrawal agreement does not provide any detail on the UK’s future relationship with the EU. However, it will be a welcome relief for businesses to avoid the much-feared short term disruption,” Francis said of the transition period.

“If the withdrawal agreement is not voted through then the uncertainty will continue. This is bad for business and does not enable planning with confidence,” Francis said.

“Manufacturers will be forced to implement contingency plans, such as stockpiling, with a financial and time cost. Ultimately though some risks are harder to mitigate against – such as the exchange rate fluctuation or delays at the border for just in time supply chains,” Francis said.

Companies were taking a range of actions to mitigate the direct impact of Brexit, according to the EEF. More than 60% of companies were evaluating suppliers inside and outside the UK, and a similar proportion were looking to stockpile components or raw materials. Over a quarter (29%) of manufacturers were already stockpiling and 33% were planning to do so this year.

Away from Brexit, the main action companies are taking to manage perceived risks to their business was increasing protection against cyber attacks. A total of 60% of companies have already increased their protection, and another 26% are planning to do so.