A new report from Make UK says Britain’s manufacturers have ended 2019 at a standstill as the toll of ongoing political uncertainty and downturn in major global markets shows little sign of ending anytime soon.
Their latest survey of UK manufacturers, produced with professional services conglomerate BDO, shows that a quarter (25.7%) view increasing investment allowances as the main priority for the new Government, with a fifth believing cuts in corporation tax should be the priority. 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.
According to Make UK, however, this respite is most probably temporary and only when the uncertainty over the direction of travel on Brexit has ended will manufacturers really turn on the taps of much needed investment to boost the UK’s productivity performance.
Said Make UK CEO Stephen Phipson: “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.
“Investment levels have slightly improved this quarter following a decline 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.”
BDO’s head of manufacturing Tom Lawton commented: “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.”
The report’s key findings:
Q4 export orders presented an improved score of 10%, up from the reported 6% balance last quarter. Although this is a positive result, international orders are still far lower than the levels seen between 2017 and 2018. UK manufacturers face a particularly difficult challenge as we are a highly trade dependent country and firms are deeply integrated within the supply chain, and therefore rely more on frictionless trade to maintain business relationships with foreign customers.
Orders and output
Since the beginning of Q2 and Q3 orders and output have come to an almost complete standstill as those early year stockpiles were wound down. Orders from Europe, the US, and Asia (our 3 biggest export markets) fell as overseas customers postponed or cancelled purchases, choosing instead to await clarity on what our future trade rules will be.
Employment and investment
The high degree of uncertainty has affected employment, with job losses and hiring freezes and investment where factories postpone capital spending plans. This is not just Brexit. While still growing, economies around the world are slowing down. World trade growth has fallen from an annualised three-month rate of around 4% in 2018 to around 0% since the middle of 2019. Domestic orders have also collapsed as a knock-on effect given the integrated dependence of UK manufacturers on global supply chains.
The economic picture remains very sluggish. Growth this year has been the slowest since the global financial crisis, and the Bank of England, the OECD, the IMF, the Centre for Economic Performance at the LSE, and a range of other think tanks and institutes have given ominous warnings about the economy next year.
The UK’s floundering productivity performance relative to our European neighbours is in desperate need of a boost, however export orders have increased slightly this quarter, indicating greater confidence from foreign customers about purchasing UK goods in the months leading up to the holiday period.
Investment also partially improved following a series of declines since the start of the year. Manufacturing employment intentions are now stable after four quarters of consecutive declines, while confidence across the industry has increased as concerns about an end of year no deal Brexit fade.