Britain’s
manufacturers have ended the year at a standstill as the toll of ongoing
political uncertainty and downturn in major global markets shows little sign of
ending anytime soon, according to a major survey released by Make UK, the
manufacturers’ organisation and business advisory firm BDO LLP.
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 got worse since the third quarter and appear to have at
least stabilised.
Manufacturers’
confidence in the economy has picked up slightly but this is likely to have
been influenced according to Make UK by a ‘no deal’ cliff edge being avoided at
the end of October.
However, this
respite is most probably temporary and 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, Stephen
Phipson, Chief Executive of Make UK, said: “Uncertainties about the outcome of
Brexit and the impending general election continue to weigh on the UK
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.
“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 twelve months will see an end to
the political charade in Westminster and a return to focus on critical issues such
as delivering a long term vision for the economy.”
Tom Lawton, head of
manufacturing at BDO, added: “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 the total order balance, whilst still just about in positive
territory, 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 turbocharged performance in 2017 when it
peaked at +37%.
Output did however
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 is 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 survey
highlights some valuable insights of sub-sector performance. In particular,
basic metals saw a large contraction due to the ongoing situation affecting the
steel sector both at home and overseas. In addition, rubber and plastics
continues to be impacted by the downturn in the automotive sector. That
downturn is now also being compounded by growing environmental concerns marking
a shift away from plastic to paper and other more environmentally friendly
products.
By contrast the
electronics sector continues to buck the trend on the back of the drive to
automation though it too has seen a decline this quarter.
The one positive
light in the survey picture is that export orders have picked up slightly from
+6% to +10%, though Make UK was 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 long 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.
The survey of 339
companies was taken from 30 October to 20 November.
