Our man­u­fac­tur­ers can af­ford to wait for an EU de­ci­sion, but not to crash out

The Observer - - Analysis -

One of Down­ing Street’s many ar­gu­ments in favour of Theresa May’s Brexit deal is that fur­ther de­lay will per­suade many of the UK’s big­gest com­pa­nies to stop pro­cras­ti­nat­ing about their in­vest­ment plans and move some or all of their ac­tiv­i­ties abroad.

Bosses have spent long enough watch­ing and wait­ing to see what kind of Brexit un­folds. An­other six months, while par­lia­ment moves in the di­rec­tion of a gen­eral elec­tion or a ref­er­en­dum on the cur­rent deal with the Euro­pean Union, would break their re­solve, say May’s sup­port­ers.

Busi­nesses have cer­tainly de­layed in­vest­ment de­ci­sions. The lat­est fig­ures show that busi­ness in­vest­ment fell by 1.1% to £47bn be­tween the sec­ond and third quar­ters last year. Worse, this was the third con­sec­u­tive quar­ter-on-quar­ter fall in busi­ness in­vest­ment and the first time since the re­ces­sion of 2008-09 that such a pro­longed squeeze on in­vest­ment has oc­curred.

Man­u­fac­tur­ers are among the worst hit. They have not only squeezed in­vest­ment: they have suf­fered a se­ri­ous dent in out­put.

GDP fig­ures last week cov­er­ing Novem­ber ap­peared at first glance to spread a lit­tle cheer. The monthly mea­sure of Bri­tain’s in­come and ex­pen­di­ture showed a small in­crease from 0.1% in Oc­to­ber to 0.2%. How­ever, a deeper dive into the data re­vealed that al­most all that boost came from shop­ping on Black Fri­day and Cy­ber Mon­day, and that most of these gains are likely to be re­vised away once the Of­fice for Na­tional Sta­tis­tics ap­plies its sea­sonal ad­just­ment meth­ods.

That leaves the glar­ing and de­clin­ing tra­jec­tory of man­u­fac­tur­ing out­put, which fell for a fifth straight month, some­thing that has also not hap­pened since the 200809 re­ces­sion.

Across a broader swath of Bri­tain’s in­dus­trial sec­tor, which draws to­gether en­ergy pro­duc­tion, wa­ter sup­ply, and min­ing and quar­ry­ing along­side the man­u­fac­tur­ing sec­tor, there were de­clines in Novem­ber across all four in­dus­tries for the first time since 2012.

The car in­dus­try was es­pe­cially badly af­fected, mak­ing a dif­fi­cult pe­riod – fol­low­ing de­clines in de­mand for cars from China and the diesel emis­sions cri­sis – even worse. On just one day last week Jaguar Land Rover and Ford an­nounced thou­sands of job cuts, while fig­ures from China re­vealed the first drop in car sales for al­most 30 years.

No­body would want such a dire sit­u­a­tion to drag on any longer than nec­es­sary. Ev­ery­one can see that the cost of ne­go­ti­at­ing an exit has proved to be high in lost in­vest­ment and out­put.

All the stud­ies, even those of the arch Brex­iter Pa­trick Min­ford – the Cardiff aca­demic whose Pan­glos­sian op­ti­mism meant he came bot­tom in a league of eco­nomic fore­cast­ers for 2018 – show the UK’s metal-bash­ers will be the most badly af­fected by leav­ing the EU’s cus­toms union and sin­gle mar­ket.

It means that the north-west, the Mid­lands (east and west) and Wales, which have dis­pro­por­tion­ate num­bers of well-paid res­i­dents work­ing in man­u­fac­tur­ing, have the most to lose. Man­u­fac­tur­ing ac­counts for 10% of the econ­omy and keep­ing it at that level in re­cent years has re­quired con­sid­er­able in­vest­ment from com­pa­nies such as Nis­san, Jaguar Land Rover and Air­bus.

So re­main­ing in­side the EU, or at the very least, get­ting the best pos­si­ble Brexit deal, is hugely im­por­tant to the ar­eas in which these com­pa­nies are based and the man­u­fac­tur­ing in­dus­try more gen­er­ally.

If a de­lay to ar­ti­cle 50 is needed to de­cide on the best route for­ward, or even a gen­eral elec­tion – this news­pa­per’s pre­ferred op­tion is a ref­er­en­dum – then in­vest­ment de­ci­sions can wait a lit­tle longer.

It will hurt, of that there is no doubt. But a bad Brexit will hurt much more.

Re­main­ing in­side the EU, or at the very least, get­ting the best pos­si­ble deal, is hugely im­por­tant to man­u­fac­tur­ing

Pho­to­graph by Oli Scarff/Getty

A flag-mak­ing firm in Ch­ester­field: UK man­u­fac­tur­ers will be hit hard by leav­ing the EU.

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