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High-tech industries face biggest Brexit slowdown

The UK’s high-tech and medium-high-tech industries are most at risk of a significant slowing of production after Brexit, trade experts warned today (Tuesday 6 February 2018).

Even signing a Free Trade Agreement with every other country in the world would not make up for leaving the EU without a trade deal, according to researchers at the UK Trade Policy Observatory (UKTPO) at the University of Sussex.

High-tech industries could see production decline by anything between 3.5-10.6 per cent, depending on the Brexit deal agreed. For medium-high-tech industries, the slowdown could be as large as 13.1 per cent.

In contrast, production output of medium-low-tech industries may face a more modest decline of 0.2 per cent and under some scenarios could actually see an expansion in domestic production by 2.2 per cent.

The new report - the most detailed independent analysis yet of the impact of Brexit on UK manufacturing – has stark implications for the UK’s new Industrial Strategy, which aims to support economic growth and drive productivity through R&D and innovation.

By modelling five Brexit scenarios  - from a ‘soft’ Brexit with Single Market membership, to a ‘hard’, no-deal outcome – across 122 manufacturing sectors, the study is the closest indication to date of which individual sectors are likely to be most affected by different Brexits.

A no-trade-deal Brexit would see manufacturing output drop by an average of 5.5 per cent and industry prices increase by five per cent.

In fact, none of the five Brexit scenarios that the team modelled would lead to a positive outcome for UK manufacturing on average.

Dr Ilona Serwicka, UKTPO Research Fellow in the Economics of Brexit at the University of Sussex, said: “Even membership of the European Economic Area would result in higher trade costs and reduced market access in comparison to that currently enjoyed by the UK as a full member of the EU.

“These higher costs will harm UK manufacturing.” 

Manufacturing exports, meanwhile, are facing an average fall of between five and 20 per cent, depending on the Brexit deal agreed.

International sales of processed and preserved meat are the most vulnerable, facing a fall in exports of up to 72 per cent if no deal is reached. Nine sectors face a decline in exports of 50 per cent or more - all belong to the food processing industry.

The outlook improves if the UK Government is able to secure a deal to stay in the Single Market, where the biggest restriction is likely to be border delays.

Under this least-disruptive scenario, the analysis suggests that manufacturing exports would fall by a more modest five per cent, while production faces a two-per-cent decline and prices would rise by 1.2 per cent.

Dr Michael Gasiorek, UKTPO Fellow and Senior Lecturer in Economics at the University of Sussex, said: “This in-depth analysis confirms that Brexit is likely to have very different effects on different industries and sectors, and it is really important to understand these differences – for future policy and for the negotiations with the EU. 

“The type of Brexit we end up with really does matter.”

Professor Alasdair Smith commented: “While manufacturing is likely to take a hit whatever option is chosen, a soft Brexit deal for the UK could avoid catastrophe in favour of something far more manageable.”

The report, published today with a briefing at Chatham House in London, also models the impact on different areas of the UK, finding large variations in exposure.

Areas most at risk of substantial manufacturing employment loss include Fylde in Lancashire, where employment is concentrated in the manufacturing of aircraft, and Leicester, with a prominent clothing and textiles industry.

In addition, areas with a significant motor vehicle sector such as Sunderland, Birmingham, Coventry, Derby, Cheshire East, Solihull and County Durham are most at risk of job losses in high-tech industries. This provides further illustration of the significant risks that a ‘no deal’ Brexit poses to large-scale manufacturing employers in the UK.

By: James Hakner
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Last updated: Wednesday, 13 June 2018