UK Manufacturing Sector Enters Recession Territory

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Uncertainties in the time leading up to Brexit is slowing down the growth of the British economy. According to official data from the Office of National Statistics, GDP growth declined from the third quarter’s 0.6% to only 0.2% in the final quarter of the year. In 2018, the economy only grew by 1.4% compared to the previous year’s 1.8% growth. It also marked the weakest year for annual economic growth in Britain since 2012.

The manufacturing sector is taking the brunt of the economic decline with figures showing that it has hit new lows, according to This is Money. Rob Dobson of IHS Markit said that the industry is venturing into recession territory, citing Brexit as the main reason for the downturn. “Stocks of inputs increased at the sharpest pace in the 27-year history, as buying activity was stepped up to mitigate against potential supply-chain disruptions in coming months,” Dobson remarked.

Motor and steel industries are hit hard

Car production and steel manufacturing are the industries most affected by the decline. Jaguar Land Rover already more than 4,500 job redundancies, while a Ford plant in Wales reportedly let go of 400 people. Being a part of the EU single market afforded the UK a free pass on tariffs, border checks, and custom controls. Before Brexit, raw materials such as steel passed between EU countries without fees, but this is all expected to change post-Brexit, assuming that a deal will not be made.

The Financial Times also stated that the majority of the vehicles produced in UK plants are shipped overseas, mostly to Europe. As the impending departure weakens trade between Britain and the rest of the EU, the demand for UK-made cars have significantly declined. Mike Hawes, the chief executive of the Society of Motor Manufacturers & Traders, added, “Thousands of jobs in British car factories and supply chains depend of free and frictionless trade with the EU. If the country falls off a cliff edge next March the consequences will be devastating.”

The demand for cars are also affected by the global economic decline, primarily due to rising trade tensions between the US and China. In Europe, where countries are moving to a greener landscape, stricter policies have also been enforced on the use of diesel-powered vehicles that contribute to the emission of greenhouse gases.

As of now, it’s still unclear what will happen after the ‘deal or no deal’ decision on the 29th March. Here on iExpats we have explored the possible options available should Prime Minister Theresa May lose the vote on the deal which the country very badly needs to agree on. It will provide more certainty to the sectors most affected, specifically the manufacturing industry. It may also improve consumer confidence if British-made products continue to thrive on the global market. The FXCM Economic Calendar shows that Growth from Knowledge (GfK) UK will release their next consumer confidence index on the 28th February. With the current trade agreements, 57.5% of UK exports head to the EU, but there’s no telling how much it will change in the aftermath of the voting process.

Manufacturers should prepare for the possible implementation of tariffs between the EU single market and the UK.

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