August 3, 2016
EEF reports on manufacturers’ response to UK’s European Union referendum
Manufacturers know that global political issues tend to trickle down to the factory floor with considerable speed. No country is isolated. No industry is exempt from feeling the tentacle reaches of economic trends and financial legislation. It’s a small world when gold, silver, tariffs—and the European Union are involved.
Indeed, many people worldwide have opinions on the recently passed UK referendum calling for the UK to leave the European Union. Following the vote count, news and media outlets were humming with disbelief as politicians and pundits debated reasons and potential impacts of UK withdrawal from the EU.
The referendum, which took place June 23, gave UK residents a chance to decide whether the UK should leave or remain in the European Union. The BBC reports that 52% of the population that voted want to leave the EU, and 48% voted to stay. The referendum turnout was an unprecedented 71.8%, with more than 30 million people voting. The massive turnout was as startling as the results.
Manufacturers are often among the most outspoken on any issues remotely connected to available capital and potential sales. The EEF, the Manufacturers’ Organisation in UK, recently released results of a survey that asked manufacturers their views on the UK’s pending exit from the EU.
“Our survey shows that 80% of manufacturers either haven’t seen any change in orders or enquiries or reckon it’s too soon to make a judgement,” says EEF’s chief economist, Lee Hopley in an EEF blog post. She adds, though, that there are concerns that weakening economic activity in the UK and a potential pause in Europe’s recovery could begin to affect orders over the next six months. Approximately 25% of manufacturers surveyed expect sales to drop in the UK, she says.
On the brighter side, many expect this could be offset, to a degree, by continued growth in sales to non-EU markets. Approximately 30% think they may see growth in exports to non-EU countries. The majority still say it is too soon to tell.
Changes in the exchange rate is one likely outcome of the referendum, the survey says.
- 53% say a weaker exchange rate is likely because of the referendum.
- 75% say volatility of exchange rates poses a business risk.
- A third of companies have already seen input costs rise, and 51% expect to see input prices increase in the next six months.
- If sterling stays at current levels against the dollar, 40% of manufacturers would consider that positive, but 34% would find that to be a negative.
The European Union is an economic and political partnership of 28 European countries. It began after World War II to foster economic cooperation and a sense of regional allegiance. Some thought countries that trade together and depend on each other are more likely to avoid going to war with each other. The union has grown to become a “single market,” allowing easy commerce across borders, basically as if the member states were all one country. “Brexit” is a term coined from “Britain Exiting,” just as “Grexit” was used to refer to Greece’s woes with the EU in 2015.
When asked about the long-term impact of Brexit, Hopley says, “Well, you know the old saying that uncertainty is the enemy of investment? That looks like it could play out in the next year. Around 56% of companies now plan to review their recruitment and investment plans in light of the referendum outcome, with one in six hitting the review button immediately.”
Clearly, debate will continue, and there is no way to predict with certainty how manufacturers will change their investment and growth strategies. But, survey results show a majority are choosing to “stay calm and carry on.”
- 9% plan to increase investments
- 43% will press on with current investment levels
- 38% will likely reduce capital expenditure
The EEF will continue to monitor news around Brexit as it impacts manufacturers, giving them a vehicle for expressing their opinions. Infor has been a sponsor of EEF’s manufacturing conference for the past two years, and is committed to helping manufacturers solve business issues.
“As a global company, Infor remains watchful of news and events that will impact the industries we support. Like others, we will be closely watching how this political-economic issue impacts our industries and people,” says Caroline Dubresson, Infor vice president of marketing for manufacturing, located in the UK. “We also have great faith that manufacturers are resilient and creative problem-solvers, who are used to volatility and persevering. They will weather this blip in the global picture with confidence.”