Michael Thornton, partner and head of manufacturing at RSM, comments on the EU referendum result…
The most obvious conclusion from the Brexit vote is that UK manufacturers now face a period of major uncertainty. No one knows how long this will hang over the country, and for business leaders uncertainty always leads to risk. Businesses need to be vigilant more than ever, and this presents a major challenge for mid-market companies where resources tend to be tightly controlled and risk management processes are informal.
In the short term, there will be volatility. This was demonstrated by the immediate move to a 30-year low for sterling against the US Dollar. Foreign currency is the most obvious commodity exposure that can have a major impact on cash and profits. There may be opportunities for alert organisations to lock in preferential rates for the short to medium-term.
Clearly, changes to international trading arrangements will be profound and we expect nearly all manufacturers to feel the impact of this, whether they supply goods overseas or purchase capital equipment from continental Europe. While nothing changes overnight, customs duty, tariffs, and VAT are all likely to be renegotiated and this will likely impact on margin, cash flow and supply chain resilience.
Many manufacturers have benefited from the free movement of labour across the EU. The attitude and flexible nature of migrant workers has brought a highly effective and plentiful supply of casual labour to seasonal businesses. It is therefore essential that immigration policies are sufficiently flexible to ensure that economic expansion is not hampered by insufficient labour.
There is, however, a golden opportunity for the sector. Brexit means that the UK should no longer need to comply with state aid rules meaning that government can implement grant funding mechanisms that get to the heart of current structural issues surrounding the funding of innovation. Furthermore, the government will be free to develop an attractive tax landscape that should maintain and build on the UK’s attractiveness to global businesses.
Above all else, we now need to acknowledge the importance of manufacturing to the long-term economic success of the UK. It is worth remembering that manufacturing generates more than 50 per cent of all exports and around 70 per cent of all business innovation. It has the potential to be the driving force for long-term UK prosperity.