Brexit Impact On UK and Eurozone Manufacturing

UK manufacturing PMI hit a 37-month-high during December 2020 at 57.5, a stark contrast to the record low we saw in April 2020 at 32.60. Brexit negations remained the driving force in the industry towards the end of 2020, with the improvement in results coming from stockpiling to build safety stocks as a Brexit buffer. Record increases in inventories of finished goods and purchases have contributed to the impressive December 2020 figure, as well as higher levels seen in November of 55.6.

How will Brexit impact manufacturing

The Eurozone also saw an increase in manufacturing sector activity towards the end of 2020. IHS Markit Manufacturing Purchasing Managers Index (PMI) saw the Eurozone hit its highest levels since May 2018 at 53.8. As expected, Germany experienced the most significant expansion, with manufacturing PMI increasing from 57.8 in November to 58.3 in December 2020.

Chris Williamson at IHS Markit stated that “Eurozone production growth accelerated to one of the fastest seen over the past three years. The strong performance of manufacturing, despite Covid-19 restrictions towards the end of 2020, represents a major contrast to the lockdowns earlier in the year, with factories acting as a crucial support to the economy as the service sector is hit by tough social distancing measures.”

“Manufacturing growth within the Eurozone is largely down to increasing demand for German goods, driving a substantial increase to Eurozone production during December, in turn buoyed by rising exports. While robust expansions were also seen in the Netherlands and Ireland, these in part reflected a temporary spike in UK demand prior to the end of the Brexit transition period.”

UK output is up

UK manufacturing output grew during the second half of 2020, as companies worked hard to build stocks and meet increased new business demand, both internationally and domestically.

“It’s encouraging that export market demand has improved since the struggles at the start of the year,” commented David Johnson, founding director of currency specialist, Halo Financial.

“Fluctuating exchange rates have had an impact on export demand in recent months, but a generally renewed sense of confidence in the British pound (GBP) may be helping support longer-term trade plans.”

Brexit to threaten international employment within the manufacturing industry

With post-Brexit now fully underway, it’s thought that the UK’s new Brexit trade deal with the EU could cast a shadow over the UK attracting overseas employees. A survey conducted by Make UK in November 2020 found that a third of companies in the manufacturing industry believed that it would be more difficult for the UK to attract overseas talent post-Brexit.

Stephen Phipson, Make UK chief executive, commented that the “new Brexit trade agreement was always going to be the biggest challenge facing manufacturers in 2021. However, just as the manufacturing sector rose to the challenge of aiding the national effort at the start of COVID-19, it is clearly set to do so again as we rebuild the economy and take advantage of the opportunities from digital technologies.”

Optimistic, but cautious…
With continued uncertainty regarding the new Brexit trade deal, manufacturers are concerned about constraints on output growth for the future, but nearly half of respondents to the survey expect stronger growth in a year’s time. As ever, optimism prevails, with high hopes for improving demand, plans for launching new products, new market expansion and, of course, less uncertainty in the months ahead.

Laurence Gavin, partner at Irwin Mitchell, concluded:

“This is an encouraging result for the sector and it is particularly pleasing to see that despite the current political situation, almost half expect to see stronger growth in a year’s time.”

It hoped that clarity and certainty for the manufacturing sector will continue to build as we progress further into the post-Brexit period so that businesses can take some longer-term decisions over investment and expansion.