14 Oct 2019

Brexit Part 6: Manufacturing & Engineering - Brexit Deal or No Deal

MHA Monahans manufacturing no deal

Whether we exit the EU with a deal or no deal on 31 October is still unclear, but whatever happens the manufacturing and engineering sector can’t say that it hasn’t had time to assess and take whatever action is appropriate to ensure continuity of production and supply to customers. Not a perfectly executed piece of work against a backdrop of continued uncertainty, but one that has allowed business owners and board rooms to assess risk and mitigate as far as possible.

Depending on where you look, the consensus is exit which will not be without pain, but there is no agreement over how long this will last. Most businesses are bracing for two or three months of disruption until everything settles down, but less optimistic commentators are looking at a minimum of 12 months. The ability of the manufacturing and engineering sector to ride the uncertainty wave will depend on factors such as how tight margins are, whether they operate in a just-in-time environment, how suppliers/customers/exchange rates react and how strong the balance sheet (read cash) is to cope with the change.

We could see a perfect storm of businesses that work on tight margins losing their production efficiencies through disruption in supply of materials, at a time when they are under pressure from overseas customers and competitors who can put forward strong arguments for moving suppliers into the EU to remove the risk of dealing with the UK. The serious debate about “off shoring” has started up again after a period when production facilities were starting to be brought back to the UK.

Delays at customs is the immediate short-term fear, with stockpiling of raw materials providing only partial cover that could be quickly exhausted. Troublesome tariffs seem inevitable on certain products and/or in certain markets that have the potential to take some less well-structured businesses down quickly.

Government commitments to replace EU grant funding when the tap is turned off is encouraging for the short and medium term, as are the various tax and other incentives that are there to help the sector weather the storm and continue to invest in a time of uncertainty. Fingers are crossed that the government has up its sleeve additional support cards for the sector for a no deal scenario, as the transition period will be longer and more painful.

Our manufacturing and engineering business leaders must try and refocus on the period after the short-term pain, and to look to get the longer-term strategy as clear as possible. Very difficult when there is dense fog over the channel. We are all hoping that we will look back in January/February and say “what was all the fuss about”, but it is looking likely that we may well have to wait until later in 2020 before the fog starts to clear and we can see more clearly.