Some of Britain’s most economically deprived regions are at risk of a triple hit to their economies if a comprehensive trade deal with the EU is not concluded by December.
This is a conclusion of the annual Regional Manufacturing Outlook survey, published in July by manufacturers’ organisation Make UK and business advisory firm BDO. The annual study examines manufacturers’ contribution to economic regions of the UK in output, jobs and investment.
Meanwhile the latest survey from the CBI found that three in four businesses are concerned about a further economic shock arising from a non-negotiated exit from the EU. In the survey 52% of manufacturers said their business preparations for the end of the transition period had stalled, while 27% said preparations had gone into reverse since January.
Make UK found that regions with a high dependence on exports to the EU and higher than average dependence on manufacturing are likely to be most at risk from “no deal” with barriers to trade and tariffs. These two factors will compound the damage already being caused by Covid-19. The areas likely to be worst hit are also the location of many of the “red wall” constituencies, won by the Conservatives from Labour at the last election.
Wales has a high exposure to trade with the EU, the destination of 67% of its exports, followed by the North East and Yorkshire & Humber, both just under 60%. The contribution of manufacturing to the economy in Wales and the North East is significantly above the national average, at 17% and 14% respectively, so that the risks of no deal are likely to be felt disproportionately by these areas, the report says. The East Midlands is not dissimilar, with manufacturing accounting for almost 16% of its economy and the EU accounting for half its exports. As Wales and the North East contain some of the most economically disadvantaged areas of the UK, a hard Brexit is likely to prove especially damaging for these areas in particular, Make UK says.
The analysis also shows a clear correlation between regional performance and exposure to industry sub-sectors which have been hardest hit by Covid-19.
Difficulties in the automotive sector have severely affected the West Midlands, where a third of regional manufacturing output is accounted for by transport, mainly motor vehicles, which are worth £7bn in GVA to the region. The East Midlands has also been severely affected because of its concentration on automotive and aerospace.
The North West has been hit through exposure to aerospace and automotive, though this has been cushioned somewhat by the region’s strong pharmaceuticals and chemicals sectors.
Make UK chief executive Stephen Phipson reiterated calls for a National Recovery Plan. He said: “Should the UK fail to reach a comprehensive trade agreement with the EU, those regions with a high concentration of manufacturing and a dependence on Europe as a major market will suffer a triple hit given the impact of Covid-19. For some companies the combination may prove fatal. It is now essential that the government works with industry and stakeholders at national and regional level to bring forward a National Recovery Plan. We are at a tipping point in how we build a recovery. If that means tearing up the rule book on adopting a new approach to policy then so be it.”
CBI director-general Dame Carolyn Fairbairn said: “The majority of firms have neither the time nor resources to prepare for a non-negotiated EU exit. A deal that supports the UK’s world leading firms and keeps UK exporters free from red tape, costs and new trade barriers is paramount as the UK takes its all-important steps towards recovery.”