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The UK technology sector risks losing £1.7bn of its export revenues if the government takes the UK out of the EU with no trade deal, according to repoort.
This 14% reduction in exports compares to a decline in technology exports of 0.6% for the EU countries, if the UK undertakes what has become known as a “hard Brexit”, according to the report from law firm Baker McKenzie and Oxford Economics.
The report analysed the technology, automotive, consumer goods and healthcare manufacturing sectors, which make up 42% of the UK’s manufacturing GDP and 45% of manufactured exports to the EU.
Much more is at stake for the UK automotive and consumer goods sectors, with £7.9bn and £5.2bn falls in exports predicted respectively.
The report found that UK manufacturers in the four sectors will see total export costs rise £3.8bn a year due to tariff and non-tariff barrier rates, such as complying with regulations, if a hard border between the UK and EU is implemented. In the technology sector, costs are predicted to rise by £200m.
Jenny Revis, trade partner at Baker McKenzie, said the figures show how UK manufacturers are likely to be hit by a hard Brexit. “You can understand why there is now mounting pressure for the UK to negotiate new customs arrangements for post-Brexit trade with the EU and for companies to work with their industry groups to help shape future trading relations with the EU.”
Across all four sectors, the EU is the destination for 49% of UK exports, while the UK accounts for just 9% of exports from the EU. “We have heard a lot about how much Europe exports to the UK, for example, in the automotive sector,” said Ross Denton, also a trade partner at Baker McKenzie. “That may be true in numerical terms, but when you look at this as a percentage of their trade, you can clearly see the EU exports a lot more broadly, to a whole host of other markets, and consequently, it is far less dependent on the UK as a market than the UK is on it. This will have significant implications for upcoming negotiations.”
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- London is at risk of being usurped as the tech capital of Europe because of the UK’s impending withdrawal from the benefits of EU membership.
At an event in June, looking at how Brexit will impact the UK IT industry, Giles Derrington, head of policy – European exit at IT industry trade body TechUK, said it was difficult to say what would be the best outcome of Brexit.
But he described two realistic scenarios. “The first is that it may take a long time and have a very soft landing. This could include five or more years of status quo to get things right, such as the trade deal and the skills we need. This could involve mirroring as much as possible what we have now, but outside the trade deal.
“There is a also a small scenario that the economy might turn and people will feel angry about what has happened to their incomes, which could soften it up and lead to the Norway option.”
Norway gets the benefits of the single market but has no say in EU decision-making, has to pay into the EU coffers and must accept EU rules such as freedom of movement.
Cabinet remains divided on Brexit
The government has since said it officially wants a two-year transition period, although the cabinet remains divided on Brexit.
The UK government will hope that increases in domestic sales and new export relationships with countries outside the EU will help offset the drop in EU exports. But the report said technology exports to other countries such as the US, China, Canada, Mexico and Australia would have to increase exports by 60% to offset the drop in exports caused by a hard Brexit.
Increasing domestic demand is also a challenge. A recent study by Accenture spin-off Avanade found that only 1% of IT decision-makers that were holding back investment plans because of Brexit have been given enough confidence in recent months to step up their IT plans. This year’s general election and the start of talks between the UK and the EU have done nothing to give those in charge of IT budgets any confidence to plan ahead.