Industry Outlook: a resilient sector with deep roots

The UK Manufacturing sector employs 2.7 million people, contributes 10% of GVA and accounts for 45% of total UK exports (EEF 2016) and in my opinion, one of the key sectors in the UK. BDO have prioritised the manufacturing sector to help manufacturers achieve their long term objectives and support their growth in the UK and abroad. It’s our focus in the sector which has led to partnering with the EEF on its Manufacturing Outlook campaign to keep informed on the key trends in the sector and its performance, enabling us to work with manufacturers on the challenges they are facing across the country.

A resilient sector with deep roots

The results from the latest EEF/BDO quarterly Manufacturing Outlook survey found that during quarter three, (of which two months were post the UK’s decision to leave the European Union), UK Manufacturers confidence about the UK economy has fallen, in comparison to the previous quarter. However, manufacturers are marching on, making the best out of the current uncertain environment. Over the last quarter there has been little change to both output and orders, however, manufacturers are reporting positively about their businesses performance for the remainder of 2016. Export orders have exceeded expectations, reporting the highest balance since 2014. Additionally, expectations of future export orders are continuing to increase, driven by the exchange rate movements and demand prospects from the US and Asian markets.

With uncertainty there is also opportunity

Immediately after the EU referendum vote, the financial markets were hit and sterling fell sharply to a 30 year low. Since then markets have started to calm down and volatility is lower. Undoubtedly, there will be uncertain times ahead and market fluctuations will still occur but with uncertainty there is also opportunity. The depreciation of Sterling will most likely put additional pressure on profit margins for manufacturers but there is a silver lining - export orders have spiked to a two-year high.

Manufacturing is a long-term game

The latest survey shows that manufacturer’s investment plans have continued to deteriorate for the fourth quarter in a row. Most businesses in the sector rely on capital investments which pay off over years or even decades and the Government should match manufacturers’ long-term outlook by looking 15-20 years ahead to plan an industrial strategy, avoiding the disruptions of the political cycle. This should include setting a formal target for manufacturing growth over the next five, ten and 20 years to provide the background to a sustainable industrial policy. The programme must be steered by a dedicated manufacturing minister, able to focus on firms’ needs in a way that will benefit us all. This is one of a series of policies in BDO’s Building the New Economy Report calling for a greater role for manufacturing in helping to rebalance the economy. The creation of the Department for Business, Energy and Industrial Strategy is a positive step in the right direction, but it must deliver a cost competitive environment that will support manufacturers’ plans to innovate, invest and grow in the long-term.