Industry slashes growth forecast ahead of EU exit – Make UK/BDO survey

14 December 2020

Brutal impact of pandemic laid bare in output fall

Key findings

  • Output and orders improve but still substantially below historic averages
  • Forward looking export picture declines ahead of EU exit, especially sharp for motor vehicles, while export margins also decline
  • Investment picture improves but now negative for three quarters
  • Employment data suggests redundancies have taken place
  • Manufacturing to contract by 12% this year and forecast for 2021 substantially downgraded

Britain’s manufacturers have slashed their forecast for growth next year with a darkening picture for exports ahead of the departure from the EU, according to a major survey published today by Make UK and business advisory firm BDO.

The survey also shows the brutal impact of the pandemic with the sector forecast to see a 12% drop in output this year, while Make UK has also substantially downgraded its growth forecasts for 2021 to just 2.7%, down from 5.1% last quarter. 

Make UK warned that should the UK leave the EU with no trade agreement in place then this forecast may be revised further given the potential for significant damage to manufacturing, with the motor vehicles sector in particular especially fearful of the potential impact of any tariffs. 

In addition to the darkening picture for exports, the survey shows investment intentions have now been substantially negative for three quarters in a row, a trend which is Make UK believes is likely to worsen in the event of the political turmoil that ‘no deal’ will create.

Stephen Phipson, Chief Executive at Make UK, said:

“Manufacturing has stepped back from the abyss that it stared into earlier in the year. But, make no mistake it is going to be a long haul back, with talk of a V shaped recovery nothing more than fanciful.
“However, having endured over four years of political uncertainty, combined with the pandemic many in industry are feeling like an exhausted boxer in the final round of a bout, with a ‘no deal’ exit from the EU potentially leading to a knockout blow.

“Should this happen the nascent recovery is likely to go into reverse, with significant damage to manufacturing and job losses following in already hard hit areas and sectors. It is essential that the first step towards a fuller recovery is provided by a comprehensive tariff and, quota free, trade agreement with the EU with a sensible range of easements to allow business some time to adapt”

Richard Austin, Head of Manufacturing at BDO added:

“After a torrid year, manufacturers who rely on Continental supply chains and export markets now face a race against the clock to prepare for the end of the transition period. The prolonged negotiations with the EU have made this far more difficult than it should have been. Manufacturers are now desperate for greater clarity so that they can be released from the post-referendum paralysis which has made it nigh-on impossible to take long term decisions.”

According to the survey the balance on output improved to -5% which, to give some perspective, compares to -36% and -56% in the previous two quarters, the latter being the lowest balance recorded in the survey’s 30 year history. While the output balance for the next quarter is forecast to improve slightly to -3%, it remains negative highlighting an anaemic picture ahead for the sector and the highly unlikely prospect of a v-shaped recovery as far as manufacturers are concerned. 

The survey also shows a similar pattern with the total order balance improving to -3% from -40% and -53% respectively in the previous two quarters. However, looking forward the export order balance is forecast to drop sharply to -14%, highlighting the concerns manufacturers have about the impact on exports as the UK finally leaves the EU.

Whilst the balance on investment intentions also improved to -11% from -32% and -26% respectively in the previous two quarters it has now been negative for three quarters in succession. While this may reflect the combination of the impact of the pandemic, political uncertainty and the debt many companies will have accumulated to stay afloat, to give some perspective of the extent of cutbacks the balance in the first quarter was +20% as the result of the election a year ago unleashed a short lived investment boom. 
The cuts investment follow the latest OBR forecasts that cumulative business investment by 2025 will be 10% lower than forecast in March.

The balance for recruitment also improved to -14% from -29% and -22% in the previous two quarters and is forecast to improve to just -1% in the next quarter. Make UK believes, however, that rather than an indicator of companies preparing to recruit, it is a sign that the sharp cutbacks in employment and redundancies have already taken place as well as the helpful impact of the extension of the Job Retention Scheme.

As with recent surveys there was a marked divergence in performance by sector in the last quarter. Electronics was one of the few sectors in positive territory with an output balance of +6%, suggesting a continued boost from investment in digital technologies as well as consumer purchases ahead of Christmas. 

By contrast, the motor vehicles sector troubles continued with an output balance of -14% last quarter and, a forecast export order balance of -33% in Q1 2021 suggesting the sector is fearful of the impact on exports of leaving the EU. 

In response to the continued impact of the pandemic on the sector and the fact recovery is likely to now be more drawn out, Make UK has substantially downgraded its forecasts for manufacturing growth to just 2.7% in 2021, down from 5.1%.  GDP is forecast to contract by 11.3% in 2020 and grow 5.4% in 2021.

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 Make UK. 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 5,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO International network.

BDO’s global network
The BDO global network provides business advisory services in 167 countries, with 88,000 people working out of 1,800 offices worldwide. It has revenues of $9.6bn.