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The fall in the value of the pound in the wake of Britain’s vote to leave the EU has not been detrimental to everyone in the country. For certain sectors of the UK economy the currency movement has been a benefit, making British goods cheaper for overseas customers.
Tata Steel, whose UK business was mired in crisis earlier this year, said last week the weaker pound would improve its short term competitive position on exports. However, it also noted that sterling’s fall would add to cost pressures because of the increased cost of raw materials purchased in US dollars.
Many other UK manufacturers are reliant on imports of raw materials or parts and components. Parts for assembly lines in the automotive industry, for example, are often supplied by overseas manufacturers. The weaker pound will mean their costs too will rise.
“Most UK manufacturers are intertwined in global supply chains,” says Rob Dobson, senior economist at Markit. “So even those who export will be hit by cost inflationary pressure.” He says this particularly applies to industries buying dollar-denominated commodities or businesses with high energy needs, which would be adversely affected by the price of oil.
Over the medium-term, growth in manufacturing is likely to slow as a result of the uncertainty caused by Brexit, according to Mr Dobson.
Sentiment has been mixed. Recent economic data show that in July, the month after the referendum, factories cut back production. Yet the manufacturing purchasing managers’ index — a closely watched gauge of activity — rebounded into positive territory in August.
Crucial for any assessment of the long-term prospects for the sector will be the UK’s new trading arrangements with the EU if and when the divorce is finalised.
An unfavourable settlement, perhaps resulting in the imposition of tariffs on British goods or restricted access to the single market, could make the UK a less attractive place to manufacture for the many overseas owners of UK industrial assets — from car factories to steel mills and chemical plants.
Decisions on future investment in plants and machinery are not necessarily taken in the UK, says Stephen Cooper, head of industrial manufacturing at KPMG, adding: “Companies don’t like FX [foreign exchange] which fluctuates all the time. If you’re planning on investment and looking at the payback time, instability in FX is very unhelpful.”
Farmers have seen some early benefits from a falling currency. “[Sterling’s devaluation] has helped us in exporting lamb to Europe,” says Meurig Raymond, president of the NFU. “Any fall in our currency helps us in the domestic [agricultural] market.”.
But agriculture will be particularly sensitive to the eventual shape Brexit takes. The sector has drawn comfort from a government pledge to guarantee £6bn of annual EU subsidy payments, once the UK leaves the EU, though this extends only to 2020.
John Cook, a dairy farmer in North Yorkshire, said the majority of farmers had voted out. “Farmers don’t like all the red tape in Europe,” he said in an interview. He is optimistic that new agreements being sought by the likes of Brexiter Liam Fox, the minister in charge of pursuing post-Brexit trade deals, could open markets in Asia up to British dairy products even though there was ““a limit to how much food a country wants to import”.
He also warned that the EU would act to protect its farmers if the UK left the single market. “We will have to become more competitive,” he said. One way to improve efficiency would be to focus subsidies on capital investment rather than giving farmers direct payments for production or land ownership.
Equally important for both farming and the wider food industry — together worth £108bn in 2014, according to the latest available figures from the government — will be the continued ability to recruit seasonal migrant workers for picking and processing fruit and vegetables.
The National Farmers’ Union is lobbying to retain the right to such labour. But with public discontent at immigration levels seen as one of the prime factors behind the vote to leave, movement of people will be one of the most charged issues in tjhe Brexit negotiations.