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UK Manufacturing Is Significantly Outperforming As A Result Of Brexit

UK manufacturing is significantly outperforming as a result of Brexit

UK manufacturing is significantly outperforming as a result of Brexit

e have become used to the mainstream media and various “independent experts” claiming that Brexit has been an economic disaster for the UK. Recent ONS GDP revisions have rather stymied that argument, as I outline here . Indeed, the UK’s economic performance has actually been stronger than presented. In particular, as I have written, UK exports have reached record levels in value terms and are performing in line with historic trend (in goods) and above historic trend (in services) in volume terms. Contrary to the mainstream narrative , UK performance is broadly comparable to the performance of other G7 nations. Catherine McBride of the IEA also recently published on UK export performance since Brexit in her report “Has Brexit Really Harmed UK Trade? Countering the Office for Budget Responsibility’s claims”. In it she states: Whilst the data is still emerging and longer-term effects are as-yet unknowable, in general, there has been no real disparity between UK trade with EU and non-EU countries. Nor has there been a sharp fall in UK–EU trade either at the aggregate or sector level despite it now being seven years since the vote to leave the EU and three years since the UK actually left. Regardless of the final effect of Brexit, it is hard to see any basis for continued acceptance of the OBR’s projection of a 4 per cent drop in relative long-run productivity given the emerging data. So far so good regarding exports. Today I thought I would take a look at UK industrial production in general and manufacturing in particular. This is an important area to look at because it is front and centre in the economic argument between those who think Brexit will be an economic success and those who think it will be or has already been an economic disaster. For the latter, the argument is that increased trade friction between the UK and the EU (from leaving the single market and the customs union) will lead to declining UK industrial production as the UK is excluded from pan European supply chains . For the former, the argument is that increased trade friction between the UK and the EU will boost UK industrial production as supply chains that moved to the EU during UK membership re-shore to the UK, whilst pan-European supply chains will be broadly unaffected as they mostly involve large companies operating to global standards who can easily manage the increased “paperwork”. The argument that supply chains/production shifted from the UK to the EU after the single market came into force in 1993 is not a particularly contentious one, and it is clearly demonstrated by looking at the UK balance of trade with EU and non EU countries. As you can see, the UK moved from a trade surplus with the EU prior to the advent of the single market, to a large and ever growing trade deficit. Over the same time period, meanwhile, the UK moved into a smaller but also growing trade surplus with the rest of the world. I had hoped that the balance of trade figures would by now give us a clue as to which of these arguments was “winning”. If Brexit supporters were right, we should start to see a reduction in the UK trade deficit with the EU. Whilst there were some signs of that from 2018, it has entirely reversed since 2021. However, the reality is the Covid lockdowns and the energy crisis (gas imports and re-exports) dwarf any Brexit effects and make any serious analysis impossible. Whilst the balance of trade figures are not (currently) useful in this debate, it does not mean that other data can’t point to trends that support or contradict the two arguments. Specifically we can compare the performance of industrial production and manufacturing since Brexit between the UK and other comparable countries. If the Brexit opponents are right, we should see signs of relative underperformance as UK PLC is removed from pan-European supply chains. If the Brexit supporters are right, we should see a UK outperformance as supply chains revert to the UK. For the data I have turned to the OECD here . I have chosen to use its volume rather than value measure, as some commentators believe that this better demonstrates the underlying trends by stripping out inflation. The OECD describes its calculation method as such: Industrial production refers to the output of industrial establishments and covers sectors such as mining, manufacturing, electricity, gas and steam and air-conditioning. This indicator […]

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Daisie Hobson

Daisie Hobson is a Director at the Reshoring Institute and an engineer with many years of experience in manufacturing and project management.

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