• Fri. Dec 8th, 2023

North East Connected

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North East manufacturers face uncertainty but golden opportunity exists after Brexit

RSMThe most obvious conclusion from the Brexit vote is that North East manufacturers now face a period of major uncertainty. No one knows how long this will hang over the country, and for business leaders uncertainty always leads to risk. Businesses need to be vigilant more than ever, and this presents a major challenge for mid-market companies where resources tend to be tightly controlled and risk management processes are informal.

In the short term, there will be volatility. This has been demonstrated by the recent move to a 31-year low for sterling against the US Dollar. Foreign currency is the most obvious commodity exposure that can have a major impact on cash and profits, although a weaker pound could help exporters. In addition, there may be opportunities for alert organisations to lock in preferential rates for the short to medium-term.

Clearly, changes to international trading arrangements will be profound and we expect nearly all manufacturers to feel the impact of this, whether they supply goods overseas or purchase capital equipment from continental Europe. While nothing will change overnight, customs duty, tariffs, and VAT are all likely to be renegotiated and this will likely impact on margin, cash flow and supply chain resilience.

Many manufacturers in the North East have benefited from the free movement of labour across the EU. The attitude and flexible nature of migrant workers has brought a highly effective and plentiful supply of casual labour to seasonal businesses. It is therefore essential that immigration policies are sufficiently flexible to ensure that economic expansion is not hampered by insufficient labour.

The ability to access funding for capital investment will continue to be a key priority for many North East manufacturers. The current regional grant programme, Let’s Grow, comes to an end in March 2017 and it had been expected that the North East Local Enterprise Partnership would announce a new grant scheme to replace it. However, uncertainty caused by the Brexit vote, which has already stalled devolution reforms, could impact future proposed activity.

It does, however, present a golden opportunity for the sector. Brexit means that the UK should no longer need to comply with state aid rules meaning that the government can re-write the rule book and implement grant funding mechanisms that get to the heart of current structural issues surrounding the funding of capital investment.

This could result in some of the restrictive rules, such as large companies not being able to access grant funding for new products unless they are manufactured on a different site, being adapted. This would be welcome news to large businesses, particularly car manufacturers, who have struggled to get funding to support new products, despite the investment opportunities for the sector and the local region.

Above all else, we need to acknowledge the importance of manufacturing to the long-term economic success of the North East and the UK. It is worth remembering that manufacturing generates more than 50 per cent of all exports and around 70 per cent of all business innovation. It has the potential to be the driving force for long-term UK prosperity.

By admin