John Mulheron gives a UK lessor’s view of “Brexit or Remain”

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Apple carts were probably invented for Boris Johnson to upset them.

The Member of Parliament & London Mayor’s announcement he will be joining the ‘Leave’ campaign would have sent a mild degree of panic through parts of Westminster. The political ‘pull’ he creates cannot be underestimated. To quote an old lager advert “Boris Johnson reaches the parts other politicians cannot reach.”

Whether the UK should leave the European Union (EU) is complicated and confusing. Leaders remain split on the impact of unpicking our apron strings from Brussels.

Would our exports be hit and trading with the EU prove to be more expensive? Does the EU need us more than we need them? What is the real cost of all the red tape businesses get wrapped up in? Many questions need answering.

Europe’s growth is at best flat, they continue print money and unemployment as a whole is worryingly high, especially in the southern countries.

Latest Markit/CIPS New Purchasing Managers’ Index (PMI) was down at 50.8, its lowest since April 2013. Exports to Europe are slowing, surely this is a sign that we need to seek a more global output?

A skills shortage

The man on the street is more likely to be swept along by the anti-immigration tide, rather than focusing on the economic impact. But, the bottom line is, the UK has a skills shortage both in manufacturing and construction industries that isn’t being filled either through graduates, apprenticeships or retraining schemes. If we can’t fulfil an order book, business won’t get the job.

If we vote to leave, there’s no escaping a period of rebalancing – be it new legal frameworks, currency fluctuations and establishing new trading agreements.

It’s likely the impact will be felt more by UK SME’s. From an economic perspective, we cannot be 100% certain whether the UK economy and its people would be better off in the event of Brexit, but one thing is certain.

To the extent that large international companies can make good their threats to leave the UK or relocate HQs in the event of Brexit, and to the extent that Brexit means fewer companies setting up in the UK to access the EU. There will inevitably be a knock-on effect to smaller businesses, their growth and investment into our local economy.

There’s no denying our historic ability to stand on our own two feet. But the EU is still our single biggest trading partner and for the UK SME’s, it is vital any growth opportunities are not brought to shuddering halt. At the moment, the referendum is too close to call, but it’s something we are monitoring on a daily basis to ensure we’re perfectly placed to deliver the right funding solutions to our clients regardless of the outcome.

The most exposed

The UK manufacturing sector is arguably the most exposed to the Brexit referendum. It delivers £6.7 trillion to the global economy, making it the 11th largest. In 2013 we exported £104 billion worth of goods to the EU and for 60% of businesses it is their main outlet of trade. With 2.6 million people employed in this sector, the 23rd June is an important diary date.

Since George Osborne delivered his 2011 budget speech championing the ‘March of the Makers’ not a lot in terms of growth has changed. In fact, figures remain pretty flat some five years on.

The British Chambers of Commerce (BCC) announced a survey of 7,500 firms which found that manufacturing fared worse than the services sector and was “close to stagnation” after domestic and export sales fell to below their pre-recession levels in 2007.

The BCC said that without government action to improve workers’ skills, upgrade outdated infrastructure, and allow small firms’ access to the same cheap credit available to major businesses, “the UK economy could suffer negative consequences in the face of increasing global uncertainty”.

Low wage economies will always hold a trump card. They can produce stuff cheaper.  But news came this week that Aston Martin, one of the most iconic and quintessential of British brands, is investing its production in Wales. It was a much needed boost for the region and a statement of the high end skills our manufacturers possess.

Let’s leave Asia to knock out cheap widgets and T-shirts. Our craftsmen can deliver things of beauty and excellence?

Lovely in theory, but it needs big business to keep investing back into our manufacturing sectors and those businesses need to ensure a skilled workforce can deliver.

The recent 2016 report by The Manufacture Magazine noted 84% of businesses still had recruitment issues with multiple vacancies on offer. Maybe, a more selective or targeted immigration policy would be a good thing?

From a regional perspective, London and the SE England continue to see stronger growth than the rest of the UK, principally driven by financial, technology and service-led industry sectors. In the south east, manufacturing only accounts for around 2% of the workforce, whereas the north and midlands employing around 12% each. The UK also benefits from 15% of an £11 billion per annum EU Innovation Fund which has been focused on supporting regions outside of London, this investment will be noticed.

The mood with many businesses I speak to is one of uncertainty. We need a clearer picture of the landscape if we decided to leave the EU.

Businesses want to be able to plan, evaluate growth opportunities and map a vision of how it can be achieved.

We have excellent relationships with a number of UK and European banks and work across a range of industry sectors with both UK and EU exposure, meaning we are well placed to independently advise our clients with funding solutions regardless of the outcome on 23rd June.

With borrowing set to remain low for the foreseeable future and the fact Europe is also heavily reliant on the UK as its main trading partner – we import around £160 billion – maybe we can carve out a better future?

Maybe – the only thing worse than being in the EU, is not being in the EU!

John Mulheron is Managing Director of CMF Capital which was recently re-branded from Corporate & Marine Finance Ltd