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Key concerns of the UK chemical and pharmaceutical sector

25th April 2018 Print

As one of the UK’s top manufacturing exporters, the chemical and pharmaceutical industry adds over £14 billion to the UK economy from sales of £40 billion. The sector alone is responsible for approximately half a million direct and indirect jobs.

That said, in the third quarter of 2017, a net balance of 13 per cent of Britain’s chemical and pharmaceutical sector reported sales growth. Likewise, 12 per cent reported an increase in jobs, while six per cent reported a growth in exports. Although the figures aren’t huge, they still show that the industry is moving forward positively.

However, the industry is not without its struggles. The sector is hypercompetitive, meaning some chemical companies are struggling to remain profitable while still driving growth — not to mention the looming uncertainty of Brexit.

Here, bolt tensioning specialist, HTL Group, discusses the challenges that the UK’s chemical sector is facing both now and in the future:

Blocked by Brexit uncertainty?

Two-thirds of UK chemical companies export their products around the world, more than any other manufacturing sector. Of these exports, more than half (60%) are sent to EU countries. Likewise, the UK is reliant on imports from Europe; three quarters of companies receive import chemicals and raw materials.

Clearly, our inward and outward dependence on the EU is problematic for chemical companies given the uncertainty of Brexit. Essentially, we’re playing a waiting game as the UK government desperately tries to iron out a trade deal with our European counterparts.

Many companies are pushing Theresa May to keep the EU’s regulatory framework even after Britain’s departure. If the UK chose to neglect REACH — the European guidelines on selling hazardous substances — the country would face huge costs in placing an alternative structure in place. These costs would have a significant impact on companies, which are already facing trialling profitability concerns, as well as potential compliance issues given the size and scale of the changes.

One report suggests that Brexit could cost chemical companies £7 billion in lost exports. While this is a worst case scenario, even with a free trade agreement in place, the Euler Hermes Economic Insight report still predicts an export reduction costing £2.5 billion. Without an agreement in place, it’s estimated that the disruption to the supply chain would lead to a turnover contraction of -1 per cent.

Standing still or moving forward?

Some reports suggest that the confusion around Brexit has led to companies delaying longer term investment. Consider how important research and development is in staying at the forefront of such a fast-paced and highly competitive industry, and this lack of future investment could essentially mean companies are standing still.

However, President of the Chemical Industries Association (CIA), Tom Crotty, has been quick to dispel this idea. He commented: “We have our challenges with Brexit and the rest but we won’t sit around waiting for things to happen to us. This is an industry that has always made its own future and will continue to do so."

Likewise, CIA’s Chief Executive, Steve Elliott, added: “In this past year we have seen significant growth in chemical production by businesses right across the UK. Now we must make sure we get Brexit right and build on that growth, with investment in our country becoming a regular and on-going occurrence."

This shows that, despite the uncertainty the industry faces, the overall outlook remains positive, highlighting the strength of the UK’s chemical sector. The next 12 months will be crucial in determining the future success of the chemical industry. Here’s hoping that Britain’s European Union divorce will prioritise one of the nation’s strongest sectors.