Robust UK Manufacturing Economy Challenged by Brexit Uncertainty

Robust UK Manufacturing Economy Challenged by Brexit Uncertainty

The Risks Posed by Brexit

Austin, USA (Mar 4, 2019) – From a manufacturing perspective, there are two main risks that Brexit brings to bear: how much will it hurt the UK manufacturing economy, and to what extent will the export of UK manufactured goods be affected? Let’s address the second item first. The concern here is that post-Brexit, the UK’s ability to sell goods to the EU, its largest trading partner, could be compromised depending on the Brexit scenario enacted. To understand the extent of this impact, let’s review the make-up of the leading sectors that make up the UK manufacturing sector and the extent to which year are exported.



The mix of UK industries is interesting, but not exceptional. More developed manufacturing economies tend to have strength in more technically intense sectors such as aerospace, automotive, chemicals, electrical & electronic equipment, and high-end machinery, and less strength in commoditized industries such as textiles, aggregates, and general-purpose equipment & goods. It is these high-end sectors that represent the larger export markets. For the UK, over half of all aerospace, automotive, chemicals & pharmaceuticals, machinery and electrical & electronic equipment are exported making these sectors most at risk in a post-Brexit scenario. Collectively they account for a little over one-third of UK manufacturing output.

Food & beverage production is the single largest sector, accounting for over a quarter of all manufacturing production in 2017. In addition, it is rapidly growing, with a CAGR of over 6% since 2007; only the aerospace production sector is growing faster in growth terms, but in terms of actual added production value the food & beverage sector’s expansion between 2007 and 2017 is by far the largest, as shown in Figure 2. Growth in food production is a global mega-trend fueled by continued population growth, and there is nothing to suggest this growth trajectory will slow.

The strength of the food & beverage industry is of note when considering Brexit impact, since these products are largely consumed indigenously, with less than 10% of UK production exported. In fact, most UK industries have a limited export exposure, relying on less than 20% of revenues from overseas demand. My back-of-the-envelope calculation suggests that less than one-third of all UK manufacturing was sold overseas in 2017. This is important, since post Brexit, and regardless of what happens with EU export markets, demand for two-thirds of the UK manufacturing economy is domestically driven. Also, bear in mind that not all the one-third of products exported end up in the EU, which further reduces the extent of manufacturing exposure to Brexit.

Forecast for Manufacturing Output

As previously stated, our forecast assumes a soft-Brexit or remain scenario, both of which would minimize the impact to export demand but would likely hinder the broader economic situation for the UK. Figure 3 outlines our projections through to 2023.



  • For the most part manufacturing appears to have fared reasonably well in 2018, recording another year of growth, albeit moderate (1.8%) growth relative to the very strong performance of 2017.
  • During the period 2017-2018, despite Brexit uncertainty being at its highest, UK manufacturing output continued to perform well.
  • Brexit aside, we are seeing a slowdown in the global manufacturing economy, and this dynamic is weighing heavy on most major economies. We previously wrote about this (here), and we have been predicting a 2019 downcycle for quite a while now.

Our current forecast for 2019 is that the UK manufacturing economy will contract by 3.3%, which would be the lowest growth recorded since 2009 (-6.2%). We partner with ITR Economics, which helps inform our economic forecasts, and it is their view that 2019 will not see a severe global economic downturn. Instead, the general expectation is that 2019 will be a temporary slowdown among certain manufacturing economies (Germany and China of note, but not so much in the US), and that 2020-2021 will be periods of growth. ITR currently believes the next major economic downturn is most likely to manifest in 2022-2023, which explains why our forecast for 2022 is negative (-2.2%) also.

The fact that the 2019 contraction is so severe reflects our view that the uncertainty surrounding Brexit (rather than Brexit itself) will significantly harm manufacturing output in the UK this year.


For more information, please contact:

Adrian Lloyd
Research Director


Interact Analysis Media Relations
+44 1933 654 245

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