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Industry nosedive continues as Brexit clock runs down – Make UK/BDO survey

05 September 2019

Perfect storm of factors points to harsh outlook ahead as firms less prepared for ‘no deal’ than in March

Key findings:

  • All survey indicators weaken significantly
  • Domestic orders turn negative
  • Export orders fall despite prices falling, showing cheaper pound is no benefit
  • No evidence stockpiling has begun in Q3 ahead of ‘no deal’
  • Investment intentions turn negative for the first time since the EU referendum
  • Decline in recruitment intentions continues
  • Manufacturing forecast cut to just 0.1% in 2019, 0.2% in 2020

Britain’s manufacturers are firmly in a nosedive as the perfect storm of Brexit uncertainty, slowdown in major markets and trade wars takes its toll according to a major survey published today by Make UK, The Manufacturers’ Organisation and business advisory firm BDO LLP.

The Q3 Manufacturing Outlook survey comes on the back of the latest PMI data earlier this week and shows all indicators have weakened significantly with investment and domestic orders in particular turning negative.

The survey also shows that a weaker currency is providing no solace, contrary to claims from some politicians and commentators, with export orders falling despite prices falling, indicating foreign customers are not buying British goods even though they are 6% cheaper than this time last year.

Commenting, Seamus Nevin, Chief Economist at Make UK, said:

“Industry is facing a perfect storm of factors, compounded by a hard Brexit which could not be coming at a worse possible time. In normal circumstances a global slowdown on its own would be enough, but add trade wars and the biggest shock to our economy since the War and there seems little doubt that, barring a remarkable turnaround, the sector is heading for recession.”

Tom Lawton, Head of Manufacturing at BDO, said: 

“Global competition, skills shortages, lack of a coherent industrial strategy from government and continuing technological disruption has made UK manufacturing a challenging sector for decades. The long shadow cast by the possibilities of a no deal Brexit and the uncertainty of recent months has only added to the difficulties for the sector.

“A cliff-edge decision on a deal or no-deal Brexit will mean a double whammy of continuing weaker demand for products and fundamental disruption to supply chains. The impact on supply chains will be particularly felt in the UK automotive sector where car parts are sourced from different European countries and delivered on a just in time basis before being finally assembled in the UK. 

“Already suffering from a fall in output for 14 successive months, car assembly – the jewel in the crown of UK manufacturing – would be particularly hit hard by a no-deal Brexit. The Government must strain every sinew to reach a Brexit deal that protects UK manufacturing.”    

According to the survey, the total order balance, whilst still just in positive territory, fell to +2% in Q3 (down from +8% in Q2 and +16% in Q1) indicating the significant rate of weakening which has taken place since the start of the year. At current trend, according to Make UK this will almost certainly turn negative in the final quarter of the year barring a remarkable turnaround in the economy.

Output also fell significantly down to +4% from +17% in Q2, indicating there is little, if any, evidence that stockpiling is building, leaving companies far less prepared for ‘no deal’ than they were earlier this year.

After two quarters where they were below domestic orders, export orders (+6%) have returned to a level above domestic orders which have turned negative at -6%. Such significant weakening cannot be explained the poorer global outlook alone, especially as UK and export prices are down by 8% and 6% respectively since this time last year.

With this harsh outlook it is not surprising that both investment and recruitment intentions have also weakened significantly. Recruitment has continued the decline witnessed for the last four quarters (six if we discount the annual increase that came in the Q4 Christmas season last year).

Furthermore, investment intentions, which have been paralysed for the last year, have now entered negative territory for the first time since Q3 2016 (the immediate aftermath of the Brexit referendum).

Unsurprisingly, therefore, both firm level and UK economy level confidence have fallen significantly this quarter with the level of confidence in the overall economy down by almost a half versus the last quarter.

As a result of this weakening picture, Make UK is now forecasting manufacturing growth of just 0.1% in 2019 (down from 0.2%) and an anaemic 0.6% in 2020 (down from 0.8%). GDP is forecast at 1.1% in 2019 and 1.4% in 2020. (All these forecasts are based on avoiding ‘no deal’)

ENDS 

About Make UK

Make UK, 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. 

Contacts

Mark Swift
0207 654 1576