Britain’s
manufacturers are warning of the potential impact of ‘no deal’ economic lunacy
as a survey shows that prospects for the sector are continuing to weaken as the
uncertainty of Brexit drags on.
According
to the Q2 Manufacturing Outlook survey published by Make UK, The Manufacturers’
Organisation and business advisory firm BDO LLP, domestic and export orders are
continuing to trend down as the boost of artificial stockpiling unwinds, whilst
growing evidence shows overseas customers are switching their supply chains
away from the UK.
As
a result, investment by the sector has been paralysed with no evidence that
there is pent-up demand waiting to be unleashed and, whilst business confidence
has held up with the relief of ‘no deal’ being avoided twice, it remains below
the levels seen ahead of the EU referendum in 2016.
Key findings:
· Domestic and
export orders continue to weaken
· Gap between
output and orders increased
· Export orders
remain at weakest levels since referendum
· Growing evidence
of European customers abandoning UK supply chains
· Investment
intentions paralysed
·
Manufacturing forecast to grow just 0.2% in 2019, 0.8% in 2020
Commenting,
Seamus Nevin, Chief Economist at Make UK, said: “Whilst
the data at first glance makes for reassuring reading there is a clear
weakening trend which, if it continues, would push some elements of industry
over the edge before too long.
“Earlier
this year there was clear evidence that industry was on steroids as companies
stockpiled. Underneath, however, there is now growing evidence of European
companies abandoning UK supply chains, whilst Asian customers balk at the
unknown of what may exist as the UK leaves trade agreements which operate under
EU rules.
“With
this picture it would be the height of economic lunacy to take the UK out of
the EU with no deal in place. The race to the bottom in the interests of party
ideology has to stop otherwise there will be a heavy price to pay.”
According
to the Make UK/BDO survey, employment and investment intentions dipped after
the temporary boost from stockpiling in Q1. Employment intentions are forecast
to fall in the next three months to just +6% from +16% in Q2, while investment
levels fell to +6% in Q2 from +12% in Q1.
Tom
Lawton, Head of Manufacturing at BDO, said: “Official
data shows a consistently downward trend in investment intentions since the EU
referendum in 2016. The impact is severe, with UK manufacturing at risk of
investment paralysis as the uncertainty of Brexit drags on.
“Companies
need to prepare for a more digitally-fluent future, both in terms of the
technologies they deploy and the people they employ, but right now
manufacturers are not confident of a future worth investing in.
“Stockpiling
is dying down and export orders continue to fall away as global competition
keeps on increasing. Combine that with a government mired in chaos and we’re
now starting to see a true reflection of the crippling anxieties the sector is
facing.”
According
to the survey, the total order balance, whilst still in positive territory,
halved from +16% in Q1 to +8 in Q2 indicating the significant rate of
weakening. UK orders were better than export orders at +11%, whilst the balance
of export orders fell to +8% from +12% in Q1.
The
last time export balances were at this level was 2016 before the strong global
performance through 2017 and 2018. Significantly, a number of industry sub
sectors are now reporting flat or negative balances, especially metals which is
being impacted by the trade war between the US and China and poor outlook for
UK motor vehicle production.
Output
has remained similarly in positive territory at +17% (down from +22% in Q1 when
stockpiling was at record levels) though looking forward it is forecast to fall
to +11% as this unwinds and the impact of the fall in orders feeds through.
According
to Make UK, while the figures currently remain positive there is a clear
weakening trend in both the domestic and export picture which cannot be
explained by the poorer global picture alone.
As
a result of this weakening picture, Make UK is now forecasting manufacturing
growth of just 0.2% in 2018 and an anaemic 0.8% in 2020. GDP is forecast at
1.2% in 2019 and 1.6% in 2020.
Tom
Lawton added: “The GDP growth forecast for 2020 is based on an agreed exit from
the EU. A ‘no deal’ scenario would likely deliver a much worse position.”
