With British manufacturing contracting sharply in the second quarter, industrial firms large and small are under pressure. Nowhere is that more the case than in the car industry, which is contending with a backlash against diesel and weaker demand in China that has coincided with Brexit uncertainty stifling investment.
The “perfect storm” for carmakers has quickly been passed down the supply chain, according to David Caro, the owner of Qualplast, a Birmingham-based maker of flock coatings for car parts such as glove compartments and coin trays in vehicles made by Jaguar Land Rover, Nissan and Bentley. The company, which employs 17 people, has seen a fall in orders from some of its major customers as they adjust to lower sales.
One of the two main definitions of recession in the UK is at least two quarters of shrinking gross domestic product (GDP), the broadest measure of economic prosperity. Judged by this yardstick, the UK was last in recession in 2008-09, when there were six consecutive quarters of negative growth.
The economic shock triggered by the coronavirus pandemic caused GDP to fall by 2.2% in the first quarter of 2020 and by 20.4% in the second – the sharpest decline since modern records began in 1955.
Some economists believe this definition of recession is flawed, since an economy would not be in recession if it contracted by 5% in the first quarter, expanded by 0.1% in each of the following two quarters and then contracted again by 5% in the fourth quarter. It would, however, be deemed to be in recession if it grew by 5% in each of the first and fourth quarters but contracted by 0.1% in each of the second and third quarters.
An alternative – and tougher definition – is a full calendar year of negative output. Given the UK economy has grown on average by 2.5% over many decades, it is rare for gross domestic product (GDP) to fall on an annual basis. There have been only five such years since the end of the second world war: 1974, 1975, 1980, 1981 and 1991.
The US has its own method of assessing recession, with the National Bureau of Economic Research's business cycle-dating committee making a judgment.
The NBER defines recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales".
A no-deal Brexit would be a “major disaster for the UK”, but particularly for importers like him, he said.
Like many in his industry, Caro’s firm is in “hunker down position” ahead of the 31 October deadline to leave the EU to which Boris Johnson’s government has stated it is committed.
“The industry is holding its breath waiting to see what will happen with Brexit,” he said. “I would be surprised if there’s any new substantial investment before they know what’s going to happen with no deal.”
Qualplast fires fibres into an adhesive to produce a smooth, even finish on its coatings. However, the firm imports all of its materials from mainland Europe.
“We can’t buy the stuff we need from the UK,” said Caro, adding that he has been forced to go through a second round of stockpiling for the 31 October date, after building up supplies for the previous no-deal deadline in March. A no-deal exit would lead to higher transport costs because of the need to go through customs checks, while tariffs could also eat into margins, he adds.
Caro believes one of the totemic manufacturing industries still in the UK finds it hard to look beyond the Halloween deadline.
