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UK manufacturers spend an average of £1m on plant

08 September, 2014

A survey of 163 UK manufacturers has revealed that at least 95% of them have invested in plant and machinery over the past two years, spending an average of £1m. And a third of them are planning to invest similar amounts over the coming two years.

The survey – conducted by EEF, the manufacturers' organisation, and Lombard Asset Finance – also reveals that 70% of the manufacturers are planning to increase their spending on staff training and recruitment, and about 60% are planning to spend more on r&d, and on marketing and branding.

For more than half of the companies surveyed, investment in these “intangibles” is becoming more important. But a quarter of the companies place more emphasis on investing in plant and machinery.

“Following a sharp decline in total fixed capital growth investment during the recession, it is great to see a more positive picture now emerging,” says Lombard managing director, Richard Hemsley. “Although it appears that manufacturers are taking a somewhat cautious approach, they are also feeling bolstered by a growing confidence in the economic climate.”

But according to EEF, the UK still lags behind its rivals on capital expenditure. In 2013, the UK figure was equivalent to 13% of GDP, compared to an average of 18% across the EU and OECD countries, despite investment levels falling across most of the developed world.

Also, according to the EEF/Lombard survey, half of UK’s manufacturers have no plans to raise their levels of expenditure on plant and machinery. Those that are spending, are doing so mainly to replace obsolete technologies, and 60% of them are planning to raise their expenditure by less than 10% over the coming two years.

A third of the companies that are cautious about investing, cite uncertainty over demand as a key reason, with a similar proportion citing constraints on internal finance. For one in eight of the companies – mainly SMEs – the availability of external finance remains a problem.

“We’re not yet seeing the step change in investment plans we need,” warns EEF chief economist, Lee Hopley. “Plans continue to be held back by uncertainty, resources and factors that tilt the decision in favour of other locations. The planned growth in investment in a range of business areas is welcome, but industry and government policies need to be striving for more.”

According to EEF, accelerating investment growth will require concerted and continuous efforts to tackle the two main hurdles to investment – confidence and cash constraints. It adds that while the primary responsibility for investment strategies sits with companies, government has a key role to play in setting the environment in which these decisions are made.

EEF is therefore calling on the government to go beyond existing measures –­ such as extending the r&d tax credit and the temporary increase in the annual investment allowance ­– by, among other things:

•  setting out a clear vision for the economy, as well as its policy and spending priorities;

•  creating a more competitive and dynamic banking environment;

UK manufacturers may be investing but they still lag behind their rivals in other countries

•  ensuring that the British Business Bank has a long-term future;

•  laying out a competitive and stable regime for capital allowances by 2016;

•  maintaining funding for the Technology Strategy Board in real terms over the next spending review period;

•  defining clearly qualifying expenditure for the r&d tax credit; and

•  increasing funding for the Catapult Centres.

The EEF/Lombard report revels that 54% of UK manufacturers have increased their turnover in the past two years and that 40% have boosted their profitability.

The report is the first in a series that will track investment trends in UK manufacturing.

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