Thousands of UK manufacturers could be “tipped over the edge” if the country votes to leave the European Union, a new report has warned.
Professional services firm Begbies Traynor said that thousands of manufacturers which rely heavily on exports – particularly in the food and drink sector – were at risk if the UK votes to back Brexit.
Even with the pound falling against the euro and US dollar in 2016 boosting exporters, Begbies said that the UK’s largest exporting industries are suffering from “rising” financial distress. The research comes ahead of the UK’s June 23 referendum on whether to remain in the EU or leave and noted that
Begbies’ Red Flag Alert, which measures corporate distress, found that 21,061 UK manufacturers ended the first quarter in a state of “significant” financial distress, a 20% increase on the corresponding three months a year earlier, even though sterling’s weakness made UK exports “more attractive” to international customers.
Julie Palmer, a partner at Begbies Traynor, said: “Our data shows that the UK’s exporting industries are already under significant financial pressure and can ill afford any potential risk to the 50% of British exports that go into the EU.”
Food and beverages production companies experiencing “significant” distress rose the fastest, at 29%, followed by a 21% increase in the broader manufacturing sector and a 17% increase in the automotive sector.
“The Red Flag manufacturing figures show that the threat of uncertainty surrounding the referendum has already put the brakes on this segment of the economy, which should be accelerating with the benefit of recent sterling weakness, with many UK firms adopting a ‘wait and see’ approach to any change to the UK’s relationship with the EU,” Ms Palmer added.
Meanwhile, quitting the EU would wipe £2,200 off household incomes, according to a report by economic experts.
Overseas investment would fall by nearly one quarter over the next decade, the London School of Economics’ Centre for Economic Performance found.
Around half of the UK’s £1 trillion foreign direct investment (FDI) stock is from other EU members but that would be hit by higher trade costs after a Brexit, it said.
The report states: “Brexit is likely to have a negative impact on inward FDI. Our new empirical analysis implies that leaving the EU will reduce FDI inflows to the UK by around 22%.
“Such losses of investment will damage UK productivity and could lower real incomes by 3.4%.
“Of course, these costs may be a price that many people are willing to pay to leave the EU. But they are not trivial costs,” it adds.
The report estimates that car production in Britain would fall by 181,000 cars, 12%, and prices would rise by 2.5%.
Even if a new trade deal keeps tariffs at zero, production would fall by 36,000 cars, it adds.
