Brexit uncertainty affected a large proportion of UK textile and apparel firms, both upstream and downstream—over 60 per cent of firms in both manufacturers and lead firms’ groups, according to researchers from the London School of Economics (LSE).
Among Brexit-affected manufacturers, market uncertainty, associated with the sterling’s depreciation and a fluctuating exchange rate, was perceived as a major factor behind a variety of consequences.
LSE researchers Simona Iammarino and Patrizia Casadei wrote in a recent blog post on the institution’s website that firms generally complained of increased costs of imports, particularly of raw materials, resulting in higher prices and lower demand for domestic production.
A high share of suppliers experienced a significant decrease in the number of orders from the United Kingdom and, to a lesser extent, European Union (EU) and international customers, due to unpredictable tariffs and delivery times.
Some firms pointed out a downturn in retail sales, following a substantial reduction in the purchasing power of UK consumers and an increase in the price of products, with several brands and high-street shops shutting down.
Some manufacturers voiced difficulties in keeping the business going, stocking up on raw materials, experiencing cash flow pressure, and facing increased foreign competition and a decrease in the labour force: Brexit-affected manufacturers employed a higher percentage of skilled EU workers and a lower percentage of UK-trained skilled workforce.
Other firms postponed investment plans and delayed innovation-related projects, partly because of uncertainty linked to access to EU funding. Several firms lost old connections or established new ones along their supply networks: they pointed out that some of the largest retailers had moved production offshore, switching from UK to other EU or international suppliers, or relocated plants and warehouses to the EU.
A small share of manufacturers (only 4 per cent) witnessed a positive effect of Brexit, experiencing an increase in orders from UK retailers who sought to source more products locally to avoid potential difficulties. These firms noticed an increase in the workforce trained domestically to develop manufacturing skills, as well as more overseas visitors due to the weaker value of the sterling.
Turning to lead firms affected by Brexit, a high share witnessed a lack of customers’ confidence, which led to a significant reduction of their spending and decline in sales, intensified by higher prices of products. Market uncertainty, weak sterling and volatile exchange rate resulted in higher costs of imports and delivery, as well as increased overheads.
Some firms mentioned a decrease in orders from UK buyers, changes to delivery plans, delayed purchasing decisions, and reduced ability to plan and deal with new potential EU and overseas customers. Others experienced a slowdown of their businesses, with reduction in profitability, investments, and workforce.