The authoritative source for independent research on UK-EU relations

26 Jan 2022

Economy

Manufacturing after Brexit

In mid-2020, UK in a Changing Europe published its report on the effects of Brexit on UK manufacturing, and the likely effects after the end of the transition period. The present report is an updated view of where UK manufacturing stands after Brexit.

The report finds:

  • The Trade and Cooperation Agreement (TCA) helped avoid tariff barriers. However, non-tariff barriers have returned, and the end of the transition period has brought adverse impacts for UK manufacturing.
  • The TCA does not fully replace the frictionless trade and market integration that existed before it. The main adverse effects have been:
    • administrative barriers to trade (e.g. customs formalities, proving rules-of-origin requirements)
    • disruptions to labour flows, both affecting certain manufacturing sectors directly (e.g. food and drinks) and indirectly harming manufacturing by damaging service sectors (e.g. logistics) that support it.
  • The adverse impacts are for now mainly showing through reduced exports and imports to and from the EU (around 15% less for both, as compared to a no-Brexit scenario), and through some production disruptions.
  • The ongoing conflicts around Northern Ireland probably represent the biggest risk to UK-EU relations, with the potential to affect the entire TCA in case they escalate.
  • Potential benefits from Brexit have yet to be felt: – There has been some redirection of exports towards non-EU countries, but this has not compensated for the reduction in trade with the EU.
    • The UK has signed only two truly new trade agreements, with New Zealand and Australia, the former still only ‘in principle’. Both countries account for a small fraction of total UK trade, and the expected benefits of the trade agreements with them are minor. Trade negotiations with the US are currently stalled. Whether there is more progress on the trade front in the future remains to be seen.
    • If there is more regulatory divergence from the EU going forward, it will become possible to see whether it will bring benefits or disruptions to UK manufacturers.
  • Any benefits that may potentially arise out of Brexit will not happen automatically. The UK needs an active, integrated, and well-funded industrial policy, within a stronger devolution framework, if UK manufacturing is to benefit from future growth opportunities. This is especially the case in the context of net zero, industry 4.0 and levelling up.
  • The impact of Brexit on manufacturing is likely to be most profound in regions in the north and midlands. That in turn will make levelling up more challenging.

Read more of our reports here.

BACK TO ALL REPORTS

MORE FROM THIS THEME

Post-Brexit imports, supply chains, and the effect on consumer prices

The impact of Brexit on UK services

Brexit and Beyond: economy

Brexit and beyond

What would no deal mean?

Recent Articles