Home News Manufacturers “grind to a standstill” in face of economic and political storm

Manufacturers “grind to a standstill” in face of economic and political storm

by Brian Sims

Britain’s manufacturers have ended the year “at a standstill” as the toll of ongoing political uncertainty coupled with the downturn in major global markets shows little sign of ending anytime soon. That’s according to a major survey conducted by business advisory firm BDO LLP and manufacturers’ organisation Make UK.

The survey also shows that a quarter (25.7%) of companies view increasing investment allowances as the main priority for the new Government, with a fifth believing cuts in corporation tax should be the priority.

The Q4 Manufacturing Outlook Survey comes on the back of a raft of weak PMI and official data across Europe in recent months, with the best that can be said being the major indicators have not worsened since the third quarter and appear to have at least stabilised.

Manufacturers’ confidence in the economy has picked up slightly, but according to Make UK this is likely to have been influenced by a ‘no-deal’ cliff edge being avoided at the end of October. However, this respite is most probably temporary. Only when the uncertainty over the direction of travel on Brexit is ended will manufacturers really turn on the taps of much-needed investment to boost the UK’s productivity performance.

Commenting on the survey, Stephen Phipson (CEO of Make UK) said: “Uncertainties about the outcome of Brexit and the impending General Election continue to weigh heavily on the UK’s manufacturing sector, but the build-up to Christmas has brought a much needed boost. Firms are reporting weaker business activity overall, especially from the domestic UK market, but export orders have increased slightly this quarter, indicating greater confidence from foreign customers about purchasing UK goods as concerns about an end of year ‘no-deal’ Brexit fade.”

Phipson added: “Christmas, and the end of the year, are a time when people reflect on the past and try to begin afresh. Manufacturers will hope that the next 12 months will see an end to the political charade in Westminster and a return to a focus on critical issues such as delivering a long-term vision for the economy.”

Investment levels improving

Tom Lawton, head of the manufacturing sector at BDO, explained: “Investment levels have slightly improved this quarter following a series of declines since the start of the year. While this is positive, and possibly a sign that the prospect of a ‘no-deal’ Brexit is less of a short-term worry, firms are still facing an uphill battle. Investment is critical to UK manufacturing. The sector is facing increased global competition and major change in respect of Industry 4.0 and sustainability. An increase in first year capital allowances – something that a quarter of companies see as a priority for the new Government – would be a good incentive to boost capital investment in 2020 and beyond. This should be considered as part of a long-term sustainable industrial strategy.”

According to the Make UK/BDO Survey, while still just about in positive territory, the total order balance fell to just +1%. This continues the downward trend seen throughout the year when it has fallen respectively from +16% to +8% and +2% in the three previous quarters and compares to the turbo-charged performance in 2017 when it peaked at a total of +37%.

Output did increase slightly from +4% to +11% but, given the survey period took place in the immediate run-up to the last Brexit deadline of 31 October, it’s highly likely this period was accompanied by some stockpiling, though not to the same extent as the record levels seen earlier in the year.

The one positive light in the survey picture is that export orders have picked up slightly from +6% to +10%, though Make UK has been cautious to point out that, in such periods of uncertainty, data can be volatile and with world markets so weak this positive picture may not be sustained. Domestic orders remain weak and in negative territory at -5% (-6% in Q3).

Having turned negative last quarter, investment intentions at last returned to positive territory reaching +3% from -1% last quarter. However, by lon- term historical standards this remains a very weak figure. Employment intentions also remain weak but stable since the last quarter.

As a result of this weak picture, Make UK is now forecasting manufacturing growth of just 0.1% in 2019 and downgraded to 0.3% in 2020 (down from 0.6%). GDP is forecast at 1.3% in 2019 and 1.4% in 2020.

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