Manufacturing sector demands ‘reset’ in UK relationship with EU as supply chain crumbles

Published

2 years ago

March 7, 2023

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The head of the manufacturing sector’s lobby group has demanded a “reset” in the UK’s relationship with the European Union, claiming international suppliers have increasingly turned their backs on the country.

Stephen Phipson, chief executive of Make UK, told the organisation’s annual conference that political turmoil in the UK had exacerbated supply chain strains caused by Brexit and the COVID pandemic.

A survey commissioned by the body showed that almost half of respondent companies said EU suppliers were now more cautious about the UK.

It found that a third of non-EU suppliers took the same view.

The report said that 40% of manufacturers had reshored suppliers in the last year and a similar figure planned to do so during 2023.

Make UK said the findings underlined the “unrelenting pressure” on company supply chains from increased costs and geo-political uncertainty.

It said they were creating unacceptable lead times and the budget, due next week, offered an opportunity to deliver the basis for a “national industrial strategy” that could support innovation and growth across the sector.

Mr Phipson said: “It’s fair to say that the last few years and, the last 12 months in particular, have been some of the most momentous times we have ever experienced.

“Everywhere I look there are huge issues impacting on the economy and our sector from the Russian invasion of Ukraine which has helped drive the cost of energy to eye watering levels, the continued after shock of the pandemic which is continuing to disrupt supply chains across the globe, the race to attract and retain talent and the emerging subsidy arms race between the US and the EU sparked by the so-called Inflation Reduction Act.

“Since it was announced there has already been some $90bn worth of green investment in the US and there’s a real risk that being outside the EU the UK risks being squeezed between the efforts of the US and the EU’s own Green Investment Plan.

“All this comes at a time when the development of technology is rapidly accelerating and the tectonic plates of geopolitics are shifting on their axes.

“All of these factors would have combined to present the UK economy and manufacturers with immense challenges even without the domestic political chaos of the last twelve months which has caused such damage to the reputation of the UK with our main trading partners.”

The “chaos” he refers to includes the slump in market confidence which met the then Liz Truss government’s mini-budget last September.

While he welcomed leadership from Prime Minister Rishi Sunak on securing the new deal – the so-called Windsor Framework – with the EU over the trading arrangements for Northern Ireland, he added: “The political mismanagement of our economy and damage to the reputation of the UK as a partner on such a grand scale, together with the disregard of the rule of law in our political system, cannot continue, he said.

“We need to reset our political and trading relationship with the EU which has been marked by such rancour”.

Business

UK long-term borrowing costs highest this century

Published

3 hours ago

January 7, 2025

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UK long-term borrowing costs highest this century

UK long-term borrowing costs have hit their highest level since 1998.

The unwanted milestone for the Treasury’s coffers was reached ahead of an auction of 30-year bonds, known as gilts, this morning.

The yield – the effective interest rate demanded by investors to hold UK public debt – peaked at 5.21%.

At that level, it is even above the yield seen in the wake of the mini-budget backlash of 2022 when financial markets baulked at the Truss government’s growth agenda which contained no independent scrutiny from the Office for Budget Responsibility.

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The premium is up, market analysts say, because of growing concerns the Bank of England will struggle to cut interest rates this year.

Just two cuts are currently priced in for 2025 as investors fear policymakers’ hands could be tied by a growing threat of stagflation.

The jargon essentially covers a scenario when an economy is flatlining at a time of rising unemployment and inflation.

Growth has ground to a halt, official data and private surveys have shown, since the second half of last year.

Critics of the government have accused Sir Keir Starmer and his chancellor, Rachel Reeves, of talking down the economy since taking office in July amid their claims of needing to fix a “£22bn black hole” in the public finances.

Both warned of a tough budget ahead. That first fiscal statement put businesses and the wealthy on the hook for £40bn of tax rises.

Corporate lobby groups have since warned of a hit to investment, pay growth and jobs to help offset the additional costs.

At the same time, consumer spending has remained constrained amid stubborn price growth elements in the economy.

Higher borrowing costs also reflect a rising risk premium globally linked to the looming return of Donald Trump as US president and his threats of universal trade tariffs.

The higher borrowing bill will pose a problem for Ms Reeves as she seeks to borrow more to finance higher public investment and spending.

Tuesday’s auction saw the Debt Management Office sell £2.25bn of 30-year gilts to investors at an average yield of 5.198%.

It was the highest yield for a 30-year gilt since its first auction in May 1998, Refinitiv data showed.

This extra borrowing could mean Ms Reeves is at risk of breaking the spending rules she created for herself, to bring down debt, and so she may have less money to spend, analysts at Capital Economics said.

“There is a significant chance that the Office for Budget Responsibility (OBR) will judge that the Chancellor Rachel Reeves is on course to miss her main fiscal rule when it revises its forecasts on 26 March. To maintain fiscal credibility, this may mean that Ms Reeves is forced to tighten fiscal policy further,” said Ruth Gregory, the deputy chief UK economist at Capital Economics.

Business

Growing threat to finances from rising bills

Published

9 hours ago

January 7, 2025

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There is mounting evidence that consumers are facing hikes to bills on many fronts after Next became the latest to warn of price rises ahead.

Business

Higher prices for 2025 as Christmas trading fails to meet expectations – BRC says

Published

15 hours ago

January 7, 2025

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Higher prices for 2025 as Christmas trading fails to meet expectations - BRC says

Shop prices will rise in 2025 as the key Christmas trading period failed to meet retailers’ expectations, according to industry data.

Shop sales grew just 0.4% in the so-called golden quarter, the critical three shopping months from October to December, according to the British Retail Consortium (BRC) and big four accounting company KPMG.

Many retailers rely on trade during this period to see them through tougher months such as January and February. Some make most of their yearly revenue over Christmas.

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The minimal growth came amid weak consumer confidence and difficult economic conditions, the lobby group said, and “reflected the ongoing careful management of many household budgets”, KPMG’s UK head of consumer, retail and leisure Linda Ellett said.

Non-food sales were the worst hit in the four weeks up to 28 December, figures from the BRC showed and were actually less than last year, contracting 1.5%.

What were people buying?

Food sales grew 3.3% across all of 2024, compared to 2023.

In the festive period beauty products, jewellery and electricals did well, the BRC’s chief executive Helen Dickinson said.

AI-enabled tech and beauty advent calendars boosted festive takings, Ms Ellett said.

What it means for next year

With employer costs due to rise in April as the minimum wage and employers’ national insurance contributions are upped, businesses will face higher wage bills.

The BRC estimates there is “little hope” of covering these costs through higher sales, so retailers will likely push up prices and cut investment in stores and jobs, “harming our high streets and the communities that rely on them”, Ms Dickinson said.

Separate figures from high street bank Barclays showed card spending remained flat since December 2023, while essential spending fell 3% partly as inflation concerns forced consumers to cut back but also through lower fuel costs.

The majority of those surveyed by the lender (86%) said they were concerned about rising food costs and 87% were concerned about household bills.

More info to come

Numerous UK retail giants will update shareholders on their Christmas performance this week including high street bellwether Next on Tuesday, Marks and Spencer and Tesco on Thursday and Sainsbury’s on Friday.