1. New Roland Berger study identifies the effects of a potential Brexit on the science and engineering sectors
2. Leaving the EU projected to harm the UK's exports: Engineering sectors account for 44% of exports, the majority of which go to the EU
3. Overseas investors deploy over GBP 50 bn a year in the UK – Foreign Direct Investment (FDI) predicted to suffer near term

Munich, May 22, 2016

When the UK votes on whether or not to leave the European Union (EU) on June 23rd a great deal will be at stake for the country's science and engineering related industries. These sectors remain the backbone of the nation's economy and a direct employer of 2.6 million mostly highly skilled workers. UK exports account for GBP 390 bn, the engineering sectors accounting for 44% of these exports, the majority of which go to the EU. These are among the findings of a new study, "Engineering Brexit – British industry must fight to remain", conducted by Roland Berger.

"With a trade deficit of GBP 34 bn, the UK can ill afford to jeopardize this revenue. 45% of UK exports head to the EU, while less than 10% of EU exports go to the UK, odds which would hardly seem to put the island nation in a good negotiating position," commented Tim Longstaff, Partner at Roland Berger.

The engineering and manufacturing focus of exports also leads to regional disparities: Scotland, Northern Ireland, Wales and the North of England are the UK's only net exporters of goods. As exporters will be disproportionately hit, the Roland Berger experts note that Brexit could be a catalyst for the break-up of the United Kingdom.

Brexit to have a direct bearing on FDI

The UK has been around the top ten of world economies for many years, but is performing more strongly again in league tables of both inward and outward capital investment. British businesses and individuals are confident investors in overseas assets, and similarly overseas investors are enthusiastic to deploy their capital in companies and physical assets in the UK, investing over GBP 50 bn a year. Relative to its GDP, the UK has the highest inward FDI stock of any major economy, and again engineering sectors are disproportionately represented. "Indeed it is fair to assert that the UK is a long-term world leader in FDI. All sectors and regions benefit from inward FDI, with an estimated 84,000 jobs created in 2015 alone," said Longstaff. Conversely, UK businesses have also invested GBP 1.0 trillion overseas, from which they earn GBP 65 bn each year.

"There is a clear impact of Brexit on UK FDI, principally because surveys consistently show over half of all inbound FDI to be directly targeted at serving the EU market, and the UK to have been the main European beneficiary of funds from all sources," said Paul Jowett, Partner at Roland Berger. "Leaving the EU would on balance be expected to have a damaging effect on both international trade terms and FDI attractiveness, particularly in the near term."

Automotive and aerospace are the most endangered sectors

The UK's withdrawal from the EU would affect some engineering sectors more than others. The Roland Berger study suggests that the automotive and the aerospace and defense (A&D) industries would be especially hit hard based on a function of exports, demand, ownership and supply chain. The year to February 2016 saw 1.6 million cars produced in the UK, a 60% recovery from the industry's 1980 ebb and near to its 1972 peak. In 2015, 77% of cars produced in the UK were exported, 44% of them to the EU.

"It took many years to rebuild the UK's automotive sector into what we see now, as part of the European and global automotive industry, highly dependent on European parts suppliers, on the exchange of qualified people and hardwired to headquarters and design centers on the continent," explained Robert Thomson, Partner at Roland Berger. The situation of the UK's A&D industry, the world's second largest, would be similarly affected by Brexit. "The days when the UK could afford to fund the development of all-new aircraft, whether civil or military, are long gone as all areas of A&D are intertwined within the EU," commented Thomson.

Though it has spawned damaging uncertainty, the Roland Berger experts also see positive aspects of the Brexit debate, which can be thanked for identifying clear pro-trade voices for change in the EU and elsewhere. Further, the UK, post "remain", has an opportunity to end a period of self-ostracization in Brussels and to lead pro-trade change in the Union. With similar proactive support from other industries, this change could include extending the single market to the service sector.