With the Bank of England predicting the UK will be mired in recession until the second half of 2024, the country’s clothing industry has been left considering how much worse the slump will be due to Brexit. Keith Nuthall investigates.
The UK’s central bank has put Brexit aside to focus on more recent challenges – saying that “high energy prices and materially tighter financial conditions” (through interest rate increases fighting inflation) “will weigh on spending”.
But the UK’s recessionary outlook does look particularly bad compared to neighbouring countries that have remained in the European Union (EU), suggesting that Brexit has made matters worse.
In France, the OECD projects GDP will grow by 2.6% in 2022, 0.6% in 2023 and 1.2% in 2024. For Germany, which has been hit hard by energy price rises because of its past reliance on Russian gas, the OECD says its economy will grow by 1.8% in 2022, contract by 0.3% in 2023 and recover by 1.5% in 2024.
And for Italy, OECD growth is projected at 3.7% in 2022, slowing to 0.2% in 2023, then 1% in 2024.
The UK, while it has significantly more energy source autonomy and diversity than Germany, will see its economy contract by 0.4% in 2023, said the OECD, with a weak increase of 0.2% in 2024. That said, this follows a projected 4.4% GDP increase in 2022, said the OECD.
Specifically, regarding the clothing industry, the Bank of England monetary policy report, issued in November, said: “As for the clothing industry….consumer facing contacts reported weaker sales volumes compared with a year ago, as pressure on housing incomes weighed on demand. Contacts said volumes of clothing and footwear sales had softened recently. Clothing and footwear retailers also reported annual inflation of around 10% but expected this to slow over the coming months.”
Mike Flanagan, CEO of UK-based industry consultants Clothesource, stressed that there were a number of reasons for this, as well as inflation, it could be “the success of anti-fast fashion propaganda…excess inventory and often catastrophic profit challenges. It could be a symptom of relative poverty among clothing’s generally biggest spenders (the under 30s), or of retailers’ inability to design clothes the UK’s most comfortably off (the over 50s) want to buy. Or it might just be that tough-to-monitor innovations (like Shein and its clones) are simply not being monitored properly.” But Brexit will have worsened the situation, for instance via the out-migration of EU citizens: “But we live close to a university town, which in EU days attracted waves of young Europeans. They are audibly scarcer today, both as workers and customers in shops. Is it possible the UK has swapped, partly because of Brexit, affluent young Europeans for the most desperate people on Earth?”
Of course, limiting tariff-free entry from the EU/Turkey Customs Union and price rises caused by the fall of the UK pound since the 23 June 2016, referendum (EUR1.30/US$1.47 to EUR1.16/$1.23 on 12 December 2022) will have helped increase UK clothing prices.
Alison Lewy, a social entrepreneur and founder of UK-based clothing and textile sector consultancy and mentoring service Fashion Angel, said that regarding the recession “the government isn’t going to say” Brexit is to blame: “They are putting it all on the war in Ukraine and post-pandemic – but it’s definitely contributing to it. It’s why we are suffering worse inflation and it’s to do with that even if they don’t want to say it.”
Smaller businesses are suffering disproportionately because of Brexit. With extra red tape for exports to Europe, courier companies have put up their prices warned Lewy. Also, direct-to-consumer customers in the EU might order from the UK, but when asked for a customs fee at the doorstep, might “find them unacceptable…and not take a parcel”. The Fashion Angel leader said: “The small-and-medium sized and micro businesses, which this sector is predominantly made-up, don’t have a team to handle this.” And such problems deter companies from exporting, which itself restricts growth: “We’re not a huge country so if you are going to scale up you are looking for overseas sales.” European markets are good for smaller businesses because of their proximity, and they used to be accessed with minimal or no trade bureaucracy or fees. Selling further afield to other export countries – it’s more complex. We say you start with the UK and then go to Europe and then start selling to Asia, the Middle East and US – you take baby steps.”
Now one of those steps has been made harder “it’s very difficult”. Companies that are already large may have a distribution warehouse in Europe “say in Amsterdam. And goods get sent out from there. Smaller companies are not able to handle that. They’re going to get ripped off by the courier firms who are charging a lot for their service,” warned Lewy.
Another good example of how Brexit has worsened the recession is the UK’s tight labour market, with unemployment last assessed at 3.6% (in July to September), said Lewy. A clothing and textile sector workforce that was once full of eastern European talent is no longer so well endowed, said Lewy: “There’s a skill shortage. British brands are often higher end and more sustainable – but if you talk to manufacturers they are struggling to get the [trained] staff.” Before Brexit, key staff were often “eastern European in factories – Polish, Bulgarians, Estonians and a lot went home and didn’t come back. A lot of skills were eastern European.” The government might be supporting the development of replacement skills through training programmes, but they “take a long time to get off the ground,” said Lewy: “It’s a big issue. Particularly if the country isn’t doing that well – you can go somewhere else and do better. The advantages that were here are not so much here now.” And post-Brexit many eastern Europeans feel “they are not really wanted” in the UK, she said.
Flanagan agreed: “Brexit so far has had only a negative effect on labour supply. No garment factory wants to place expensive fabric in the hands of inexperienced staff. Brexit has caused the loss of skills.”
Are there Brexit benefits? Not according to Flanagan, who voted remain in the 2016 referendum: “For clothing and textiles, there aren’t any. We thought there wouldn’t be any a decade ago, but to be honest always thought someone (like Brexiteer Simon Wolfson at Next) would uncover some. He hasn’t, and I really can’t say I’ve stumbled over anyone who has.
“There’s no doubt that the
astronomical growth in red tape just beats the complete absence of Brexit
benefits – but it’s worth repeating that the growth in red tape, of itself,
produces no value to anyone.”
By Just Style