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Brexit uncertainty continues to take toll on manufacturers - Make UK/BDO survey

03 June 2019

Economic lunacy of ‘No Deal’ scenario must be avoided at all costs

Key findings:

  • Domestic and export orders continue to weaken
  • Gap between output and orders increased
  • Export orders remain at weakest levels since referendum
  • Investment intentions paralysed
  • Manufacturing forecast to grow just 0.2% in 2019, 0.8% in 2020

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.

According to the Q2 Manufacturing Outlook survey published by Make UK, The Manufacturers’ Organisation and business advisory firm BDO LLP, 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.

Commenting, Seamus Nevin, Chief Economist 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 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. This 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% 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.

“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% 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 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% (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.

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% in 2018 and an anaemic 0.8% in 2020. GDP is forecast at 1.2% in 2019 and 1.6% in 2020.  

Tom Lawton added: “The GDP growth forecast for 2020 is based on an agreed exit from the EU. A ‘no deal’ scenario would likely deliver a much worse position.”

ENDS 

About Make UK

EEF, the manufacturers’ organisation, is the representative voice of UK manufacturing, with offices in London, Brussels, every English region and Wales.

Collectively we represent 20,000 companies of all sizes, from start-ups to multinationals, across engineering, manufacturing, technology and the wider industrial sector. We directly represent over 5,000 businesses who are members of EEF. Everything we do – from providing essential business support and training to championing manufacturing industry in the UK and the EU – is designed to help British manufacturers compete, innovate and grow.

From HR and employment law, health and safety to environmental and productivity improvement, our advice, expertise and influence enables businesses to remain safe, compliant and future-focused.

About BDO LLP

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

Our clients are Britain’s economic engine – ambitious, entrepreneurially-spirited and high growth businesses that fuel the economy. 

We share our clients’ ambitions and their entrepreneurial mind-set. We have the right combination of global reach, integrity and expertise to help them succeed. 

BDO LLP

BDO LLP operates in 17 offices across the UK, employing 5,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP has underlying revenues of £590m and is the UK member firm of the BDO International network.

BDO’s global network

The BDO global network provides business advisory services in 162 countries, with 80,000 people working out of 1,600 offices worldwide. It has revenues of $9bn.