How uncertainty around Brexit and deteriorating exchange rates may affect manufacturing firms

 Since the referendum in June 2016 over membership of the European Union voted in favour to leave, manufacturing firms across the UK have been carefully assessing the impact departure from the single market is likely to have. With deteriorating exchange rates seeing the value of the pound dropping to its lowest level in three decades, it’s no surprise that UK businesses are seeking reassurances that the economic impact will not negatively affect their organisations.

In the wake of the vote, many commentators have speculated that manufacturing firms will suffer, whereas others – and indeed results thus far – have demonstrated the opposite. With that in mind, we take a look at a few of the key considerations to bear in mind for manufacturing firms unsure of the likely impact.

Moving operations

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Arguably the most significant factor emanating from Brexit and poor exchange rates relates to UK manufacturing firms looking to relocate their businesses overseas. In fact, as recently as March this year, it was speculated that one third of all UK manufacturing businesses were already considering shifting elements of their business elsewhere. Such a move – with many looking towards regions of China and India – would doubtless deliver cost savings in terms of production and overheads, key concerns for any business.

Foreign investment

 

Overseas investment has long played an important role in the UK manufacturing industry, with 2013 figures exceeding £150 billion. Continued investment is now, of course, under risk, with many foreign investors reticent to invest their money where the value is not perceived to be as great as previously. Until a trade agreement has been finalised, it should come as no surprise to manufacturing firms in the UK that a slowdown in overseas investment can be expected.

Material costs

 

With the value of the pound plunging following the Brexit vote, and continuing to be down in comparison to rates before the referendum, it goes without saying that the value achieved for UK businesses in importing the materials necessary for manufacturing has deteriorated. Securing the best value for money in material costs has become more important than ever, with manufacturing firms needing to source suitable supply chains that will ensure affordability for the years to come.

Employment

 

The impact on employment within manufacturing firms in the UK should not be neglected. Each of the above factors has the potential to cause significant harm to the staffing and employment of those currently working in factories across the UK. Automotive manufacturers have already been vocal about the risks associated with unsatisfactory trade deals, with the risk of layoffs and closure potentially impacting thousands of workers in the coming years.

Further advice

 

The real impact of Brexit for the manufacturing industry and the falling value of the pound are yet to be truly experienced. As the government battles to determine the full details of leaving the single market and establishing trade deals independently, firms within the UK continue to be wary of the associated risks. Kreston Reeves can offer accounting advice for manufacturing firms looking to find out more about how Brexit could affect them, so call today to discuss your circumstances with experienced accountancy professionals.