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CMF Capital Gives Manufacturing & Engineering Industry Opinion on Brexit Implications PDF Print E-mail
Tuesday, 08 March 2016

Apple carts were probably invented for Boris Johnson to upset them. The MP & London Mayor’s announcement he will be joining the ‘Leave’ campaign would have sent a mild degree of panic through parts of Westminster. The political ‘pull’ he creates cannot be underestimated. To quote an old lager advert “Boris reaches the parts other politicians cannot reach.”

Whether the UK should leave the EU is complicated and confusing. Business leaders remain split on the impact of unpicking our apron strings from Brussels. Would our exports be hit and trading with the EU be more expensive? Does the EU need us more than we need them? What is the real cost of all the red tape businesses get wrapped up in? There are many questions that need answering.

Europe’s growth is at best flat, they continue print money and unemployment as a whole is worryingly high, especially in the southern countries. Latest Markit/CIPS New Purchasing Managers’ Index (PMI) was down at 50.8, its lowest since April 2013. Exports to Europe are slowing, surely this is a sign that we need to seek a more global approach to our output?

The man on the street is more likely to be swept along by the anti-immigration tide, rather than focusing on the economic impact. But, the bottom line is, the UK has a skills shortage both in manufacturing and construction industries that isn’t being filled quick enough either through graduates, apprenticeships or retraining schemes. If we vote to leave, there’s no escaping a period of rebalancing - be it new legal frameworks, currency fluctuations and establishing new trading agreements.

According to CMF Capital’s North Division Head, Nick Rhodes, it’s likely the impact will be felt more by UK SME’s in the north and midlands; “From an economic perspective, we cannot be 100% certain whether the UK economy and its people would be better off in the event of Brexit, but one thing is certain. To the extent that large international companies can make good their threats to leave the UK or relocate their HQs in the event of Brexit, and to the extent that Brexit means fewer companies setting up in the UK to access the EU, there will inevitably be a knock-on effect to smaller businesses, their growth and ability to invest and keep driving our economy forward.”

“There’s no denying our historic ability to stand on our own two feet. But the EU is still our single biggest trading partner and for the UK SME’s, it is vital any growth opportunities are not brought to shuddering halt. At the moment, the referendum is too close to call, but it’s something we are monitoring on a daily basis to ensure we’re perfectly placed to deliver the right funding solutions to our clients regardless of the outcome.” Continued Rhodes.

The UK manufacturing sector is arguably the most exposed to the Brexit referendum. It delivers £6.7tr to the global economy, making it the 11th largest. In 2013 we exported £104bn worth of goods to the EU and for 60% of businesses it is their main outlet of trade. With 2.6m people employed in this sector, the 23rd June is an important diary date.

Since George Osborne delivered his 2011 budget speech championing the ‘March of the Makers’ not a lot in terms of growth has changed. In fact, figures remain pretty flat some five years on. The British Chambers of Commerce said a survey of 7,500 firms found that manufacturing fared worse than the services sector and was “close to stagnation” after domestic and export sales fell to below their pre-recession levels in 2007.

The BCC said that without government action to improve workers’ skills, upgrade outdated infrastructure, and allow small firms access to the same cheap credit available to major businesses, “the UK economy could suffer negative consequences in the face of increasing global uncertainty.”

Low wage economies in Asia will always hold a trump card. They can produce stuff cheaper. But, news this week that Aston Martin, that one of the most iconic and quintessential of British marquee brands is investing its production in Wales. It was a much needed boost for the region and a statement of the high end skills our manufacturers possess.

Leave Asia knock out cheap widgets and T-shirts. Our craftsmen can deliver things of beauty and excellence? Lovely in theory, but it needs big business to keep investing back into our manufacturing sectors and those businesses need to ensure a skilled workforce can deliver. The recent 2016 report by The Manufacture Magazine noted 84% of businesses still had recruitment issues with multiple vacancies on offer.

From a regional perspective, London and the south east continue to see stronger growth than the rest of the UK, principally driven by financial, technology and service led industry sectors. Here manufacturing only accounts for 2% of the workforce, whereas the north and midlands employing around 12%. The UK also benefits from 15% of an £11bn pa EU Innovation Fund which has been focused on supporting regions outside of London.

According to CMF Capital’s Managing Director, John Mulheron; “The mood with many businesses I speak to is one of uncertainty. We need a clearer picture of the landscape if we decided to leave the EU. Businesses want to be able to plan, evaluate growth opportunities and map a vision of how it can be achieved.”

“We have excellent relationships with a number of UK and European banks and work across a range of industry sectors with both UK and EU exposure, meaning we are well placed to independently advise our clients with a funding solutions regardless of the outcome on 23rd June.” Continued Mulheron.

With borrowing set to remain low for the foreseeable future and the fact Europe is also heavily reliant on the UK as its main trading partner – we import around £160bn – maybe we can carve out a better future?

Maybe. The only thing worse than being in the EU, is not being in the EU.

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