Brexit delays hit UK manufacturing investment

UK manufacturing is at risk of investment paralysis, with industry leaders branding a potential Brexit no deal as ‘economic lunacy' as prospects for the manufacturing sector continue to weaken as the uncertainty of Brexit drags on

According to the latest Q2 Manufacturing Outlook survey from BDO and Make UK, domestic and export orders are continuing to trend downwards as the boost of artificial stockpiling unwinds, while there is growing evidence that 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.

Seamus Nevin, chief economist at manufacturers’ body Make UK, said: ‘While 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.’

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.

‘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, while 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. Significantly, a number of industry sub sectors are now reporting flat or negative balances, especially metals which is being affected 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.

As a result of this weakening picture, Make UK is now forecasting manufacturing growth of just 0.2% in 2018 and only 0.8% in 2020.

Pat Sweet

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