Could the rise of import costs be an issue for UK manufacturing?
Reports show that over the last month the cost of imports has risen significantly, since the Brexit vote, which may take the shine off the strong performance the manufacturing sector has been showing recently. The rising cost of imports is expected to push the price of UK-make goods notably over the coming year.
The Bank of England has highlighted that price pressures in the economy are growing and especially in the manufacturing industry due to the sector relying heavily on raw materials and components brought in from overseas.
Industries with different overseas suppliers are also thought to be lobbying to stay inside the single market and maintain access to the various EU markets tariff free. Car firms have also warned the government that if they face tariffs and higher regulatory costs on imports and exports to the EU, the future of their investments in the UK might not be certain, as the fall in sterling against the dollar and euro would not be enough to keep their investments. Nevertheless, a consistent increase in new orders and activity has been registered since May 2014.
Overall manufacturers shouldn’t rely too much on domestic demand as it could fade away once the price rises feed into the supply chain.
Ginni Cooper, Corporate Services Director said:
“The effect of weakened sterling brings an added challenge to our UK manufacturers who import a significant proportion of their raw materials. Whilst our net exporters may currently be enjoying the upside of a weakened pound, many manufacturing businesses supply solely or predominantly to the UK. Business owners are having to weigh up whether increased prices can be passed on to the customer or absorbed via effective cost control elsewhere, easier said than done in light of ever increasing energy and employment costs.”