Posted on 11/06/2019 6:37:05 PM PST by Cronos
British productivity is falling at its fastest pace in five years and business investment has stalled since the 2016 Brexit vote
As uncertainty over Brexit spills into its fourth year, Swiftool Precision Engineering (SPE) has taken a tough investment decision: it will press ahead with a plan to spend £250,000 (about R4.7m) on a 3D printer but a new workshop roof will have to wait.
Like many British companies, the small, family-owned firm, which makes parts for aircraft engines and offshore oil wells, wants more clarity on what leaving the EU might mean for its business before carrying out all its investment plans.
“You become more mindful,” director Sam Handley said at the company’s workshops, near Mansfield in central England, where it employs 126 people.
SPE is not alone in being cautious. British business investment has fallen 1.1% since the Brexit referendum in June 2016 and analysts warn that could cause long-term damage to the economy. Over the same period, business investment in the other G7 big, industrialised economies has risen 10%, with the US posting an increase of 13%, according to Alpesh Paleja, an economist with the Confederation of British Industry.
“With every piece of machinery we have to convince the bank that we are doing the right thing. Every decision counts,” Handley said. SPE cuts parts to within a hundredth of a millimetre for global manufacturers such as Britain’s Rolls-Royce, US company Baker Hughes, and Germany’s Siemens, and is busy working on scores of potential new orders.
British Prime Minister Boris Johnson is urging voters to end the Brexit impasse by giving him a majority in parliament in an election on December 12, so he can get the divorce deal he struck with Brussels last month past lawmakers.
But like many executives frustrated by Brexit, Handley is not counting on a breakthrough any time soon. “I don’t think the uncertainty is going to lift at all. I think we might get a hung parliament. If this was a business, they would have been removed from their post,” she said, referring to the UK parliament. “It’s disgraceful.”
Productivity plunge
Weak business confidence is not just a British phenomenon. The International Monetary Fund (IMF) says China-US trade tensions are hurting investment globally. But Brexit uncertainty threatens to turn the British problem into a crisis.
Bank of England (BOE) deputy governor Dave Ramsden said in October that weak investment has eaten away at Britain’s growth potential to the extent that the economy is now too inflation-prone to allow the central bank to cut interest rates.
The automotive sector — which is grappling with the prospect of high EU tariffs on top of global upheaval within the industry — cut investment by more than 70% in the first half of 2019, according to an industry group.
European planemaker Airbus, meanwhile, warned earlier in 2019 that it might stop building aircraft wings in Britain if the country leaves the EU without a withdrawal agreement.
Warning signs about Britain’s diminishing growth potential are flashing in its productivity record. It has long lagged the performance of the US, France and Germany, and in the three months from April, British output per hour fell at its fastest annual pace in five years.
Paul Mizen, an economics professor at the University of Nottingham, said a survey of companies set up in 2016 by his university, along with Stanford University and the BOE, did not bode well for productivity. “Investment growth has been affected to the greatest extent among the most productive firms, which indicates that the productivity average for the UK as a whole will be lower.”
Mizen said the decision-maker panel survey also showed that constantly changing Brexit scenarios are distracting companies from focusing on boosting productivity.
Johnson says things could improve quickly. Getting his Brexit deal through parliament will “unleash a great tide of investment into this country and be a demonstration of confidence in the UK economy”, he told lawmakers in October. But even if Johnson secures his divorce deal, it looks unlikely that he would be able to settle the next stage of Brexit quickly by hammering out a new EU trade deal before another potentially nerve-jangling deadline at the end of 2020.
What’s more, the opposition Labour Party has raised the prospect of more uncertainty. If it wins on December 12, it will try to a strike a new exit deal and hold another referendum, throwing the Brexit question up in the air again.
Sterling and steel
At SPE, which makes parts for shipyards working for Britain’s navy as well as the aviation and petroleum sectors, Handley assumes there will be more bumps in the road.
Potential Brexit problems include disruption at Britain’s borders with the EU that could push up the price of the steel her company needs, or a further fall in sterling that would make imports of key parts from the US more expensive.
To address those risks, SPE has stockpiled steel and, after taking a £140,000 hit from a bout of sterling weakness in 2018, makes sure it hedges all its foreign exchange exposure.
But top of Handley’s worry list is uncertainty about the rules for the aviation industry — its biggest growth market. Johnson has left open the possibility of diverging from EU standards in sectors such as aviation to help Britain secure post-Brexit trade deals with the US and others.
Having to comply with different sets of rules would mean additional costs for British manufacturers that could erode their competitiveness.“There was just no warning about that,” Handley said. “It felt so unfair.”
For now, SPE is pressing on with day-to-day business. In a room off a busy workshop, sales staff are working on more than 70 inquiries from potential customers. “I think we will still be in a state of flux in 12-18 months’ time,” Handley said. “But you’ve just got to find a way round it if you can.”
Brexit would provide certainty and new opportunities.
It is the anti-Brexit forces who have defied the vote of the British people for 2 years who have created economic uncertainty and chaos.
1. What opportunities? Can you describe them?
2. Imagine if West Virginia decided to leave the union, what would be its opportunities?
3. the “vote” was a non-binding, advisory referendum, not a US-style referendum where action MUST be taken.
4. Also in that non-binding, advisory referendum, it was a 51.48% win for “a type of Leave” - what leave was never specified nor asked. Since then the disagreement is over what type of leave.
There would most likely be a big opportunity with President Trump/USA trade deal.
And couldn’t the UK also do deals with Mexico, Japan, Vietnam, India, and others? Is there some reason why not?
And surely West Virginia is part of one country—USA. But the participants you speak of in the EU are each separate, individual countries. Each country can stand on its own and has for hundreds of years before the EU existed.
Cedar has answered most of your points. The opportunity of not being under the thumb of a monstrous dictatorial beauracracy that the EU is rapidly becoming is reason enough. Being free to negotiate trade deals with dynamic free-market economies is another opportunity.
I big to differ about “non-binding referendum”. Britain has an unwritten constitution where traditions govern. One of those traditions is that if an election is held on around a particular issue, then the outcome of that election is a mandate to implement that issue. That is why a prime minister who couldn’t in good conscious implement that mandate resigned. That is why the current rump parliament, despite clearly desiring to undermine Brexit, doesn’t dare simply say “that was a non-binding referendum”.
Answer: Brexit and the release of the FISA Report
Question: Name two things that will never happen
There would most likely be a big opportunity with President Trump/USA trade deal. -- definitely. Yet the USA currently accounts for 12% of UK trade and the USA runs a massive surplus against the UK. Even with the best opportunity, that can at best double.
The rest of the EU accounts for 54% of UK trade. The USA isn't going to replace that.
More critically - the UK has little that it makes that the USA wants -- that 12% is mostly imports from the US to the UK.
And couldn’t the UK also do deals with Mexico, Japan, Vietnam, India, and others? Is there some reason why not? -- it could, but again, what does it have to offer?
India has already said it wants more open immigration for its nationals as quid pro quo for trade
Japan has said that leaving the EU will be bad as many Japanese companies WERE using the UK as a gateway to Europe. With Brexit, companies like Honda, Nissan and others are shifting operations to Ireland or the Netherlands or even Germany
Vietnam - now the EU has signed a deal with Vietnam. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/790325/Impact-of-the-EU-Vietnam-free-trade-agreement-on-the-UK-economy.pdf -- that doesn't automatically roll over, the UK will need to renegotiate and they will have a weaker hand compared to when they were part of the EU. Expect more to be leveraged out of the UK, but yes, that will be good
Mexico - In 2018, two-way trade between Mexico and the UK reached over $4.6 billion USD. Mexico exports to the UK include: gold, automobile parts, beer and other electrical equipment. British exports to Mexico include: alcohol, medicine, transistors and various other products. That's a small trade, comparatively the UK trades $127 billion with the USA. And look at the main exports: auto parts, electrical equipment, transistors - all of those are because the UK is part of the Western european supply chain
finally - note that besides the USA the other trade deals will take time - if not years - to complete.
And those deals will be weaker than the trade deals that the UK already has with India, Vietnam, Mexico, Japan etc. as part of the EU
W Virginia was an analogy - and it gives an idea of the enormity of the task of extrication.
The UK is part of the eu confederation, not a state in the union like WV. Yet it has been part of this confederation for 50 years. That is 50 years of joint agreements, regulations, trade deals etc.
all of the trade deals the EU made with India (say) do not roll over to a trade deal India-UK. India will squeeze the UK for more benefits naturally as the UK will have a much weaker hand outside the EU. ditto for a US-UK trade deal or any other
the other part is - what about all the laws that the UK passed based on EU guidelines? Boris said most will roll over and continue in the UK, but is that what the Brexit hardliners want?
Finally - the borders for goods and services. Outside a customs union, you have time spent at borders and added costs associated with that as well as with tariffs
If W Virginia, where I note Cap is from, left, it would have to figure out how to deal with all of these issues. The UK has it easier, but not something that can happen overnight
Like the tradition that there is no place in the constitution for national binary referendums, for which there had therefore been only two precedents?
Like the tradition that Parliament is sovereign: 'nothing may be done that Parliament cannot undo'?
Like the tradition that the Parliament established by the most recent General Election therefore trumps all previous elections and votes?
Each country CAN stand on its own, no doubt - and Scotland and Wales can also stand as independent countries. And even WV could stand as an independent country if it left. However it would take time to implement this
The UK isn't going to descend to the stone age post Brexit, no way, but it will have a dip in GDP and it will have components (Scotland, NI) leaving - reducing it to basically England-Wales
those are things that can be overcome --as Anne Widdecombe, the Brexit party leading member said - the UK can survive returning to the post WWI state.
Too many people were fed a story of a paradisaical economy post Brexit, but even Rees-Mogg later has said that it would take decades to get back tot he 2016 standard of living again
Here's the thing -- I believed that as well, until about 2018, that the EU bureaucracy was bloated and getting in the way.
I still think it needs trimming, but it isn't a clear bad - it has helped and helps the UK economy grow immensely now.
What changed me from thinking it only bad to my stance that it is slightly good but needs reform, is that I checked up on the various "incidents" of bureaucratic redtape - and read for myself that the various banana curvature, tea kettles etc. were media myths - just as much lies as accusing the President of Russian collusion etc.
That's why I ask folks on FR why they personally think about X, y or z and most of the answers are "because the media told me" -- don't trust the media - whether the telegraph or the guardian (and the sun is like Huff post - heavily biased and half truths at best)
Anyway, so Being free to negotiate trade deals with dynamic free-market economies is another opportunity. -- they can already and already DO negotiate trade deals as part of the wider bloc -- the Vietnam trade deal I mentioned above is an EU-vietnam trade deal that gives the UK immense benefits -- UNTIL BREXIT. Then the UK will need to negotiate from a weaker stance
I brought up W Virginia as an example of stating how it is better to negotiate as part of a wider group.
I beg to differ about “non-binding referendum” -- yes, Sir you are right about the unwritten constitution, and in that it is clear that parliament is sovereign, not the people - The European Union Referendum Act 2015 is a shoddy piece of legislation. The Act did not make the Brexit vote legally binding. The Act contained no rules or ministerial responsibility on what should happen in the event of a vote to leave. There was no time limit on implementing the referendum result. The Act makes no reference whatsoever to Article 50: the UK’s legal means of exiting the EU.
"One of those traditions is that if an election is held on around a particular issue, then the outcome of that election is a mandate to implement that issue." - and yet the referendum wasn't such an election - it needed a separate act of parliament and one that did not make it binding
As to why "the current rump parliament, despite clearly desiring to undermine Brexit, doesn’t dare simply say “that was a non-binding referendum”." is because later in 2016 Parliament passed an act calling on the government to invoke Article 50
in addition - the current parliament is not a rump parliament - it was elected in in 2017 May - after Brexit. This parliament is what the British people wanted, in a general election.
Technically a Norway-style deal (which is full customs union, paying into the EU budget, open to Schengen etc.) is also "leave".
The leave campaign talked about a Norway-style deal and now Boris is giving something harder than that
The British government has hog tied and lied to their people making them think they cannot survive with out it
nah, on the contrary, Boris and team made projections of how wonderful life will be post Brexit
Thanks for the reasoned response.
I still differ and think Britain and the world will be better off with Brexit. The trend towards centralization of power is always a dangerous thing, as the larger the government and the more indirect the means of influencing governmental decisions, the more unaccountable governments become. We see a great deal of that in the US, and unlike the EU, we have the advantage of direct election of our chief executive.
Still its nice to be able to come to Free Republic and hear educated and article views from every perspective.
My opinion is that Brexit will happen - I was hoping on October 31, but now hope for Jan 31
I do think that the market will have a slight bounce for the first month after it happens, but to really, really gauge whether it was a success or not we need to wait for at least 2 to 3 years.
in the interim, BOTH sides will claim "victory" but that would be incorrect
In the case of the EU, the good thing about Brexit is that it is pushing more decentralization.
At its heart, the EU is a confederation - a looser version of the Holy Roman Empire - which as we know was neither holy nor Roman nor an Empire :)
What I see is more pushback to the commission who are losing a lot of their showboat effect to the Council of Leaders - namely the elected heads of Government (with Donald Tusk as arbitrator). That’s good.
I think the EU parliament is a waste. It pushes the EU out of a successful confederation into a wasteful federation.
As to the UK, I look forward to seeing history happening with England, Wales and Scotland being separate entities in my lifetime. While as an Anglophile it is sad, as an amateur historian, it is exciting to see a historical event unfurling before our very eyes
Have enjoyed reading comments from both of you. Cronos, you’ve certainly brought out the complexity of issues involved, though I tend to still agree with Captain Morgantown’s overall perspective.
Whatever the outcome, I wish the best for the British people.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.