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Brexit: Mixed feelings for industry as uncertainty reigns

30 June 2016

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With many questions regarding the United Kingdom’s forthcoming exit from the European Union yet to be answered, industry representatives are divided on the extent to which Brexit will affect businesses operating in the UK. 

A week on from the UK referendum on EU membership, which on 23 June saw a slim majority vote to leave the bloc, it remains far from clear what kind of relationship UK businesses will have with the European trade associations of which they are currently members.

More broadly, questions like whether a post-Brexit UK will be part of the European Economic Area, and when exactly the country will activate Article 50 (triggering the process by which member states exit the European Union), are yet to be answered.

What is clear, however, is that UK-based industries are set to endure a prolonged period of uncertainty – not least because the decision to leave may lead to considerable regulatory change.

Moreover, the terms of Britain’s departure may be harsh as the European Union seeks to dissuade other member states from heading for the exit. Belgian Prime Minister Charles Michel said Britain "cannot have its cake and eat it too".

Storm clouds brewing on climate and energy policy

The European Commission and the European Parliament have sought over the past few months to strengthen the EU’s action on climate change. On Tuesday, the Parliament voted overwhelmingly in favour of raising the bloc's renewable energy target to 30% by 2020.

In sharp contrast the UK has been ambivalent. The UK Renewable Energy Association (REA) released a report this month citing recent “sudden and severe” policy interventions by the government as “likely to have a negative impact on growth rates in 2016”. REA also said the policies currently in place in the UK would not be sufficient to reach the country’s 2020 targets.

The UK has the EU’s largest offshore wind industry, but much of this investment depends on EU subsidies.

EU smart grids and the internal energy market are expected to be difficult to access from outside the European Union. Phil Taylor, director of the Sustainability Institute at the University of Newcastle, warned that Brexit could reduce the UK industry's ability to agree prices for goods and make it more expensive to decarbonise the economy.

Fall of sterling to boost exports?

The pound started to fall as soon as the result was announced. In the near future this could make British exports cheaper, creating an opportunities for UK industry.

Michael Thornton, head of tax consultant firm RSM, said Brexit could even be "great news" for British manufacturers.

“Brexit means that the UK should no longer need to comply with state aid rules meaning that government can implement grant funding mechanisms that get to the heart of current structural issues surrounding the funding of innovation,” Thornton said.

The UK’s Chartered Institution of Building Services Engineers (CIBSE) expressed similar sentiments. CIBSE President John Field believes “the referendum result creates significant opportunities and commitments to increase engagement with regional, national and global interests".

Others expect to see no significant long-term change in the UK’s trade arrangements. Gregory Hayes – the president and CEO of UTC, of which Carrier is a subsidiary – believes “the current benefits of a free and open trading zone will largely remain at the conclusion of this process”.

Uncertainty and restrictions

One potential downside is delay and prolonged uncertainty. But Hayes remains hopeful “that the separation process will be carried out in a manner that minimises disruption and economic impact".

Echoing such sentiments BESA, the UK’s Building Engineering Services Association, said uncertainty would be the biggest challenge going forward.

The Institution of Engineering and Technology (IET) sees Brexit as a major risk for the future of UK engineering. Naomi Climer, IET president, warned that potential immigration caps would represent a major barrier to industry. “Limiting the number of professional engineers that could come and contribute to our economy would affect the industry and the nation’s financial well-being“.

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