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Make UK/BDO survey – Manufacturing exports slump to lowest level in three years

16 March 2020

Government urged to work with manufacturers to mitigate impact of coronavirus with whatever tools necessary.

Key findings

  • Output fell sharply on back of weak orders and Autumn stockpiles wound down
  • Domestic orders improve but still negative, worst run since 2015
  • Export orders turn negative for first time since Q4 2016
  • Evidence EU customer sentiment turning away from UK
  • Electronics turns negative for first time since 2015 as access to semi-conductors and other components dry up
  • Northern Ireland least optimistic area of the UK
  • Manufacturing forecast to contract in 2020 by -2.1%

Britain’s manufacturers are calling on the Government to work with industry and take whatever steps are necessary to mitigate the impact of coronavirus. Concerns follow a survey published today that shows exports have slumped to their lowest level in three years.

The Q1 Manufacturing Outlook survey published by Make UK, the manufacturers’ organisation, and business advisory firm BDO LLP, which was taken before the recent escalation of the economic situation across Asia and Europe, confirms that the sector had ground to a standstill at the end of 2019 as the stockpiles from a potential October EU exit wound down.

While the domestic picture had begun to improve slightly, exports fell sharply in response to a downturn in world trade, a situation likely to be exacerbated by current events.

In addition, a separate snap poll of companies conducted by Make UK showed that over a third of companies (36%) say EU customer sentiment has worsened since exiting the EU, indicating EU customers are now looking away from the UK.

Make UK and BDO warned the true impact of coronavirus may not yet have been recorded but the next few weeks should shed some light on how the sector is responding to disruptions that are set to send shockwaves through industry supply chains.

Seamus Nevin, Chief Economist at Make UK, said:

“After the rollercoaster ride of the last twelve months and a series of stockpiling highs and investment lows the election result had at least provided some degree of political certainty and a prospect of a return to cyclical economic normality, but the escalation of coronavirus is likely to knock that off course.

“Even before the current situation the shocking drop in exports could not have come at a worse time ahead of potentially difficult trade talks where the clock is running down fast. It is now vital that Government works with industry to limit the damage to industry and take whatever steps are necessary to safeguard skills in particular.”

Tom Lawton, head of manufacturing at BDO, added:

“As coronavirus fears take hold and the impact on the sector’s crucial supply chains remains largely unknown, businesses should be preparing themselves for more volatility this year.

“The dramatic fall in exports only exacerbates the challenges to come. There is no doubt that the sector needs the Government to step up and deliver a clear and supportive industrial strategy to help navigate the choppy waters ahead.”

According to the Make UK/BDO survey, total orders improved from +1% in Q4 2019 to +4% in Q1, though to put this in perspective this compares to the turbocharged performance of manufacturing in 2017 which peaked at +37%. 

Total orders in Q1 reflect the slightly improved picture for domestic orders, although they have still remained negative for three successive quarters which is the worst run since 2015 (-3% from -5%). This contrasts with the picture for export orders which deteriorated significantly from +10% to -2%, the first time export orders have been negative since the final quarter of 2016.

The weakness of the order picture coupled with the unwinding of stockpiling which took place last Autumn meant output fell to just +2% from +11%. By sector, the continuing difficult situation affecting the steel sector meant basic metals output fell by a balance of -29%, whilst the effect of the coronavirus on access to semi-conductors and other components is starting to impact on the electronics sector with a balance of -5%, the first negative balance for the sector since Q4 2015.

Northern Ireland had the lowest level of business confidence, reflecting the uncertainty over future trading arrangements given its exposure to the EU and the fact that manufacturing is a higher than average percentage of the Northern Ireland economy (15.2% compared to 10.1% UK overall). 

Make UK is forecasting manufacturing output to fall by -2.1% in 2020 (downgraded from 0.3%) though this may be downgraded further in the light of the current situation and to grow by an anaemic 1.1% in 2021. GDP is forecast to be 1.4% in 2020.

ENDS 

Notes to Editors

  1. The survey of 306 companies was taken from 29 January to 19 February before the recent escalation of coronavirus.
  2. The snap poll was conducted amongst 112 companies from 1-12 February. The question asked companies if sentiment had improved towards them or worsened since the UK had left the EU. 35.6% of companies said sentiment had worsened and just 2.9% said it was more positive. 61.5% said there had been no change.

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 5,500 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.