SMMT: Would No-Deal Undermine Britain’s Green Recovery?
Brexit negotiations have been in the news a lot recently, and regardless of whether you voted to leave or remain, you’ll be acutely aware of the potential economic consequences of both remaining in a trade union or actively walking away from it. There’s pro’s and cons to both sides of that, but the Society of Motor Manufacturers and Traders have suggested that exiting the EU on 31st December without a trade deal and returning to World Trade Organisation (WTO) terms would be “the worst possible outcome and [it will] undermine Britain’s green recovery.”
Given that WTO rules will result in a 10 percent tariff on the finished vehicle trade, the industry lobby group has announced that no deal would prompt a £2800 “average price uplift” on EU-built electric vehicles (EVs). That’s not too bad, really, although it will effectively cancel out the UK’s existing plug-in car grant of up to £3000.
SMMT officials claim that the higher cost could reduce the battery-powered electric vehicles (BEV) demand in 2021 by at least 20 percent, which would hamper the UK’s efforts to reach the increasingly ambitious carbon emissions reduction targets, recently set by the government.
“Tariffs would also add £2,000 to the cost of British built battery electric cars sold in Europe, damaging international competitiveness as the UK strives to become a global leader in electromobility.”
“New calculations illustrated the high stakes of no deal, not only for the automotive sector but for hopes of a green recovery from the coronavirus crisis,” it said.
“No deal would be the worst possible outcome for UK Automotive, for car buyers and for the country’s ambitions to become a world leader in transport decarbonisation. The immediate imposition of blanket tariffs under WTO rules would add billions to the cost of trade and, crucially, to the cost of building and buying electric vehicles.
The 10% no-deal WTO tariff would add at least £4.5bn to the annual cost of fully assembled cars traded between the UK and the EU, with an average hike of £1,900 per EU built vehicle sold in the UK,” the SMMT said.
“However, new analysis shows that for fully electric cars fitted with expensive battery technology, the cost increase is even higher, at £2,800, effectively making the £3,000 plug-in car grant for these vehicles null and void.”
“Moreover, this tariff would also add some £2,000 on to the average cost of UK built battery-electric cars exported to the EU, making our own products less competitive and the UK far less attractive as a manufacturing investment destination. This would further hamper the UK’s ambition to be a global leader in zero-emission vehicle development, production and deployment, severely damaging industrial competitiveness.”
The SMMT also made the claim that the UK and EU automotive industries are deeply integrated as two-thirds of battery-electric cars sold in the UK are made in Europe. I suppose, in many ways, you could say that they are interdependent; but that isn’t to say that we could, as a nation, broaden our horizons in terms of the automotive market ─ it doesn’t have to be EU-orientated.
“New tariffs would hold back the evolution of the electric car from a niche technology to one with mass affordability.”
Mike Hawes, SMMT chief executive, said: “Just as the automotive industry is accelerating the introduction of the latest electrified vehicles, it faces the double whammy of a coronavirus second wave and the possibility of leaving the EU without a deal. As these figures show, ‘no deal’ tariffs will put the brakes on the UK’s green recovery, hampering progress towards net zero and threatening the future of the UK industry.
To secure a truly sustainable future, we need our government to underpin industry’s investment in electric vehicle technology by pursuing an ambitious trade deal that is free from tariffs, recognises the importance of batteries in future vehicle production and ensures consumers have [a] choice in accessing the latest zero-emission models.
We urge all parties to re-engage in talks and reach [an] agreement without delay.”
IHS Markit/CIPS: UK Manufacturing PMI near-record high
UK manufacturing trends
For the UK manufacturing sector, growth of output and new orders were both reported by IHS Markit and CIPS as among the best seen over the past seven years, which in turn has led to a strong increase in employment. Despite this, the sector continues to face supply chain delays and input shortages, which resulted in increased purchasing costs and record selling price inflation.
UK Manufacturing IHS Markit/CIPS Purchasing Managers’ Index® (PMI®)
Seasonally adjusted, IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) rose to 60.9 in April, which was an increase compared to March (58.9) and above the estimated 60.7 for April.
Increasing for the eleventh consecutive month, the latest readings are the highest since July 1994 (61.0). The output growth for April has been attributed to the loosening of lockdown restrictions, improving demands and a rise in backlogged work.
“The manufacturing sector was flooded with optimism in April as the PMI rose to its highest level since July 1994, bolstered by strong levels of new orders and the end of lockdown restrictions opened the gates to business. It was primarily the home market that fuelled this upsurge in activity though more work from the US, Europe and China demonstrated there were also improvements in the global economy. This boom largely benefited corporates as output growth at small-scale producers continued to lag behind,” said Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply.
In addition to expanding production, total new orders rose for its third consecutive month, which was attributed to a revival of domestic market conditions, stronger client confidence, parts of the economy reopening and improving global market conditions.
While new exports rose in April, the rate was reported as weaker in comparison to new orders. “Companies reported improved new work intakes from several trading partners, including mainland Europe, the US, China and South-East Asia. Large-sized manufacturers saw a substantial expansion in new export order intakes, compared to only a marginal rise at small-sized firms,” said IHS Markit/CIPS.
UK Manufacturing’s outlook
Remaining positive at the start of the second quarter, 66% of companies forecast that output will be higher in a year's time, which is attributed to expectations for less disruption related to COVID-19 and Brexit, economic recovery, improved client confidence and new product launches.
“Further loosening of COVID-19 restrictions at home and abroad led to another marked growth spurt at UK factories. The headline PMI rose to a near 27-year high, as output and new orders expanded at increased rates. The outlook for the sector is also increasingly positive, with two-thirds of manufacturers expecting output to be higher in one year’s time. Export growth remains relatively subdued, however, as small manufacturers struggle to export,” said Rob Dobson, Director at IHS Markit.
Adding to comments from IHS Markit and CIPS, , Managing Director of Freight and Logistics at Accenture Global said: “While today’s figures are positive overall, the worsening supply situation is still a concern, with rates of both input costs and selling price inflation running far above anything previously seen. Shipping delays and material shortages are driving huge backlogs of uncompleted work and the surge in manufacturing orders is leading to many firms struggling to boost operating capacity to keep up with demand. With business expectations becoming even more optimistic as the economy rebounds, the big question will be whether firms will be able to cope with the surging inflows of new orders.
“As ongoing supply chain issues are still at large, companies with wide international footprints should look to reassess their logistics strategies by running supply chain stress tests and simulations in order to respond quickly to upswings and variability in demand. A flexible and resilient supply chain will be a key way for businesses to remain both competitive and stable as we emerge from the pandemic”