Manufacturing: how much of it depends on the single market?
"During this period of uncertainty, businesses like Hitachi Capital should provide a reassuring and stable voice to the manufacturers they finance"
This article was produced in association with Hitachi Capital UK
The future of the UK’s single market membership following the Brexit vote has been keeping politicians and business leaders awake at night. Indeed, one in five businesses has postponed or abandoned investment because of uncertainty over this very issue.
The High Court ruling earlier this month is a salient reminder that nothing on the road to Brexit can be sure, and that firms will need to adapt to uncertainty. But uncertainty can open up a whole new level of opportunity. It’s up to business to decide what the outcome will be.
At Hitachi our heritage is grounded in manufacturing, a fast-paced, versatile sector. Over the decades we’ve seen first-hand how successfully manufacturers of all kinds have been able to adapt, evolve and innovate.
While political hyperbole might suggest otherwise, only six per cent of the UK SMEs currently export to the single market. It’s not a prerequisite for business success. Those exporters who have concerns must also understand that access to the single market is not the same as membership of the single market.
And while historically the EU bloc has been our largest trading partner, accounting for 44 per cent of exports, the remaining 56 per cent is outside the EU at a value of £286.3bn. The European Commission itself has said that “over the next ten to 15 years, 90 per cent of world demand will be generated outside Europe.” We must ensure we are well placed to capitalise on opportunities that the wider world presents us with.
The spread of the smartphone across Europe is an example of an export, often made in China by a US company—two nations that don’t have trade deals with the EU—which continues to thrive in the single market as a much sought-after product.
Furthermore, UK exporters will continue to meet EU standards when selling to the EU, just as they have always done when selling to the US or China. Where we now benefit is that our regulations, which were previously enshrined in EU law, are of a sufficient standard to ensure our exports are welcomed into the European market.
Manufacturers should further be encouraged by the UK’s position of strength in negotiations. Exports of goods and services from the UK to EU countries were worth £220 billion in 2015, but exports from the EU to the UK were worth more—£290 billion. As David Davis noted earlier this year, these countries have a vested interest in ensuring that UK consumers continue to buy German cars and French wine.
For the majority of companies and investors, it’s business as usual. Despite uncertainty over Britain’s future in the single market, 68 per cent of businesses haven’t postponed or abandoned investment plans following the referendum result. We also know that of those business that have stalled, 70 per cent are likely to consider resuming investment plans if uncertainty over the UK’s future membership of the EU is resolved.
During this period of uncertainty, businesses like Hitachi Capital should provide a reassuring and stable voice to the manufacturers they finance—and indeed to all their SME customers. In support of this, we continue to call on the government to provide clearer direction and assistance to help UK businesses understand how best to finance their growth over the next five years.
Monetary policy and incentives are often restricted to the banking sector and should be widened to non-bank financial institutions. Finance providers like Hitachi Capital provide a more focussed level of support for SME’s, so raising the profile of these alternative forms of funding, along with the provision of simple government incentives to stimulate investment, will remove the inactivity created by uncertainty and create conditions for real growth in the economy.
Just as the financial services industry demands passporting rights, the voices of the manufacturing industry must also be heard. UK manufacturing employs 2.6 million people up and down the country and accounts for 44 per cent of total exports worldwide. It is vital that we acknowledge the significant role this industry plays in the economy, and ensure any Brexit deal puts our manufacturers in a strong position.
For our exporters, the message is clear: businesses rather than politicians are the real drivers of trade and industry, and we must continue to engage with the single market while doing what we can to forge new partnerships globally. Looking outwards, not inwards, is how we will thrive.
On the 17th of November, Prospect launched Brexit Britain: the trade challenge. A publication designed to act as a guide for parliamentarians, officials and businesses with a stake in the UK’s changing relationship with the world following Brexit.
If you want to know how different industry sectors are likely to be affected by the coming change and the answer to that all-important question: how do we ensure Britain remains open for business? then download your free copy of the Brexit Britain: the trade challenge.
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