Last week 52% of the British electorate voted to leave the EU. As we negotiate our exit – future access to the single market is something EEF will be pushing strongly for on behalf of the manufacturing sector.
We’ve looked at the most recent trade data to see which sectors of UK manufacturing have their order books most exposed to potential uncertainty from customers and suppliers in the coming weeks and months.
51.6% of total manufactured exports by value went to the EU in the 12 months to April 2016 (this excludes the three smallest sectors of furniture and wood products, repair and maintenance and the manufacture of petroleum products). The chart below shows the deviation from that average for each sector.
When taking into account the export intensity of each sector, the most exposed sector for exports to the EU is the Mechanical equipment sector, the least is Paper and printing.
This percentage of the sector's output is exposed to the EU and therefore under threat depending on the post-Brexit reality.
56.2% of manufactured imports came from the EU (although note this will be a combination of intermediate goods and final goods for sale).
Foreign exchange volatility
There has been significant foreign exchange volatility in the last few days, some of which may persist for a prolonged period. The graphic below shows the change in sterling against the currencies of our top trading partners – over the year to April 2016 and to Tuesday’s mid-market rate.
Some companies would have hedged against this change, but to varying degrees. The top line message is that exports will be getting cheaper and imports (such as input components and commodities) more expensive for manufacturers.
On average 32.9% of manufacturers inputs are imported.
Certain sectors are more exposed to this risk – Electronics, Basic metals, mechanical equipment, electrical equipment and aerospace are all sectors with over 40% of their inputs coming from imports.
Following Brexit what needs to happen?
Sector trade intensity explains why one of EEF’s key asks in the forthcoming negotiations on Britain’s future relationship with Europe, is maintaining tariff free access to the EU market for goods and services.
As the manufacturing sector navigates the unprecedented challenge of our future relationship with our top export market, now is the time for manufacturers to sign up to EEF membership to get their voice heard at the top table.
You can also keep updated on this fast moving area via our free weekly policy intelligence briefing, which you can sign up to here.