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Falling Pound Might Not Help Exports After All

Since the British public’s decision to leave the European Union back in June, much has been made of the future of the UK manufacturing industry. Indeed, a large segment of the pre-referendum debate centred around how British manufacturing businesses would fare in a world where we might not have a free trade agreement with the EU.

Immediately following the referendum, however, something curious happened. As the value of the pound fell to record lows, an upside emerged – it was suddenly much cheaper for foreign nations to buy British goods. For manufacturers like us who produce hydraulic hose fittings that’s meant a boost in sales. Indeed, even commercial brands like Burberry are claiming a leap in sales thanks to the low cost of buying British following the referendum.

This has led many to speculate that we could be in for a return to the golden age of British manufacturing, but new research is urging caution, suggesting that a weak pound will do little for exports.

Deutsche Bank have expressed scepticism about the notion that the fall in the pound will return Britain back to "a Victorian age in which British manufacturers export world-class products unencumbered by EU regulations".

The note says: "International economics has evolved since the Victorian era, however, and world trade no longer consists of final consumption goods being bartered for raw materials."

They also pointed out that whilst manufacturers’ final products would be cheaper for foreign customers, the imported raw materials that make up these products would be more expensive, virtually eliminating any benefit.

The means they would only truly benefit from the fall in sterling if they add value during the manufacturing product, a tactic employed in successful industrial nations like Japan, the US and Switzerland.

Presently, the UK occupies a role closer to an assembly line, which research says puts us in line with China, Hong Kong and Switzerland.

All in all, experts are predicting a mixed future for the UK manufacturing industry, but much remains unanswered. Indeed, many of these estimates are based on the notion that we don’t have free trade with Europe. Presently the EU accounts for a third of all trade from Britain and if negotiations end up in a levy placed on UK trade to the EU.

In that case, the cost of buying in raw materials from overseas and the cost of the levy on businesses could lead to a sharp fall in export orders for home grown manufacturing enterprises.

However, should Britain land a favourable deal with the EU and manage to strike good trade deals around the globe, there’s little to say that manufacturing businesses should struggle in the medium and long term. Put simply, there are too many variables to accurately gauge how bright Britain’s manufacturing future is, but for the time being, we shouldn’t rely on the falling pound to prop up exports.

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