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.
The Q2 Manufacturing Outlook survey published by Make UK and business advisory firm BDO LLP, shows that 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.
Stephen Phipson, Chief Executive 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 stockpiling. 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 per cent from +16 per cent in Q2, while investment levels fell to +6 per cent in Q2 from +13 per cent 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 per cent in Q1 to +8 per cent in Q2, indicating the significant rate of weakening.
UK orders were better than export orders at +11 per cent, whilst the balance of export orders fell to +8 per cent from +12 per cent 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 per cent, though looking forward it is forecast to fall to +11 per cent 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 per cent in 2018 and 0.8 per cent in 2020.
GDP is forecast at 1.2 per cent in 2019 and 1.6 per cent in 2020.