- Commerzbank’s chief UK economist Peter Dixon tells BI there is “not a chance” of a Brexit-driven manufacturing renaissance in Britain.
- The UK has moved consciously to be a services economy, and that cannot be easily reversed.
- Manufacturing currently accounts for around £400 billion of Britain’s GDP.
LONDON — There is “not a chance” that the British economy will start to rebalance away from the services sector and towards manufacturing after Brexit, despite arguments to the contrary from many of those who backed leaving the European Union, according to the chief UK economist at Germany’s second largest lender, Commerzbank.
Speaking to Business Insider this week, Commerzbank’s Peter Dixon said that the UK is “starting from too far behind” to fundamentally readjust back towards manufacturing having “made a decision 30 years ago” to make the UK a services economy.
“There’s a number of reasons,” why moving back to manufacturing simply wouldn’t work, Dixon said.
“One is that we’ve allowed our manufacturing sector to atrophy, and actually we’ve basically crushed loads of parts of it over the last 30 or 40 years.
“Secondly the likes of China and other industrialising nations can outcompete us on costs, and increasingly they can out-compete us on the amount of resources they can throw at a problem, so they can boost their high tech sectors, for example.”
Manufacturing currently accounts for close to £400 billion of the UK’s output, or 15% of GDP, but some have argued that Britain should attempt to drive it further to around 20%, citing the boost to the sector the fall in the pound since the referendum has created. Doing so, it is argued, would allow Britain to cope better with the hit the country’s services sector is likely to take from leaving the EU, especially when it comes to financial services.
The financial services industry is expected to lose financial passporting rights, which allow banks with a base in the UK to sell products and services to customers and financial markets across the EU, after Brexit. That has prompted numerous banks to announce that they will move some staff out of the UK and to other European cities that are within the EU.
Dixon said this is likely to be “the thin end of a wedge which other companies will have to think about as well.”
That move away from services can’t happen, Dixon argues, because of the effort Britain made to specialise in services in the last few decades.
“I don’t know who in their right might would think that the UK can enjoy some sort of manufacturing renaissance.
“We can’t. We’ve moved on. We made a decision 30 years ago that we were gonna get out of manufacturing and effectively specialise in services.”
The industries where Britain leads the world in manufacturing terms, Dixon says, are also limited in their scope to drive growth.
“When it comes to manufacturing, what are we going to do? We are big in certain types of machined goods, big in pharmaceuticals, and other high-tech manufacturing. That’s not very labour intensive, and particularly in the pharma sector, it is extremely difficult to generate the kind of blockbuster drugs which tend to be successful.”
“British pharma firms have been struggling for a long time to come up with new products as the patents on their old ones expire.
“I really think, that from a British perspective, it is lose-lose.”
As well as being a vain hope, the drive to move Britain back to manufacturing reflects the “1950s throwback thinking” that Dixon believes has been apparent from certain sides of the Brexit debate.
“There are those who say that it’s going to help us revive our manufacturing, but that’s the kind of 1950s throwback thinking that has permeated the Brexit debate all along. Instead of looking backwards, we should be looking forwards as to what we can actually do reasonably.”
“Trying to recreate what we once had just isn’t going to work. We’re starting from too far behind.”