The weaker pound has already led to a boost in UK manufacturing
It will take two years for the UK to extricate itself from the EU, by the end of which time Prime Minister Theresa May intends to have left the single market but retained access to the common market.
Common markets create a border around members, goods from outside of which are taxed at the same level regardless of which country inside the market imports them, while members benefit from free trade within the market.
Should the UK secure its ultimate aims, domestic exporters will still be able to trade with the EU as they currently do, although they will have to adhere to the Union’s regulations on products.
Several barriers exist between the UK and the trade deal it wants however, including the EU’s need to defend the benefits of membership.
The UK may therefore end up with a deal that does not include access to the common market, which would mean UK exporters may have to lower prices in order to appeal to EU buyers who will have to pay taxes on goods imported from Britain.
For larger companies, this fall in profit can be more easily absorbed, but SMEs could struggle to lower their margins.
Concerns about tariffs and market access largely apply to businesses who intend for the EU to remain their primary market.
The United Kingdom, post-Brexit, is looking at a different level of relationship with India
The government is investing millions of pounds into a campaign to raise awareness of the benefits of exporting, with the aim of doubling the UK’s export volumes to £1 trillion by 2020.
Part of that money has been spent on the Exporting is Great website, which currently lists tenders from Burma, the USA, Kenya, Canada, Hong Kong and China, amongst others.
Outside of the EU, the UK already has large export markets in the US, China, Japan, the United Arab Emirates and Canada.
Philip Hammond is hopeful of building a thriving trade relationship with India
Many countries have already expressed an eagerness to create new trade deals with the UK once it is separated from the EU, including Australia, the US and South Africa.
Additionally, the UK already has strong ties with many potential free-trade partners, such as India; companies in India use London’s financial services sector to raise finance by issuing rupee-denominated treasuries nicknamed ‘masala bonds’.
India’s Finance Minister Arun Jaitley, who met with Chancellor of the Exchequer Philip Hammond this week, said: “The United Kingdom, post-Brexit, is looking at a different level of relationship with India.
“And there’s a huge aspiration in India itself also to add to and improve on this relationship.”
While the issue of tariffs may be more pressing with regards to the European Union, weakness in pound exchange rates is a more universal issue.
However, the pound has proven resilient in recent weeks. The pound’s upsurge in response to the triggering of Article 50 (GBP/EUR is up 4.2 per cent and GBP/USD is up 1.3 per cent since March 29th) suggests investors had largely priced-in the impact of the official start of Brexit negotiations.
Theresa May is hoping the UK can retain access to the common market
Weaker pound exchange rates have already served to boost overseas demand in the manufacturing industry, with the latest Markit/CIPS manufacturing purchasing managers’ index remaining above its long term average.
Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply said: “Factories have revved up production for eight consecutive months on the back of new orders from both the UK and abroad.”
“The beginning of formal negotiations with the EU has failed to dampen the sense of optimism and manufacturers expect production to continue growing in the year ahead.”