The global site of the UK's leading magazine for automation, motion engineering and power transmission
12 July, 2024

Twitter link

UK industry cuts spending with no sign of V-shaped recovery

21 September, 2020

Britain’s manufacturers have slashed investment in a battle to stay afloat, despite improvements in output and orders, according to a survey by the manufacturers’ organisation, Make UK, and business advisory firm BDO.

Make UK warns that the uncertainty over the Brexit negotiations – with the real possibility of a no-deal – combined with the continuing impact of the pandemic, could cause further damage to investment in the remaining part of this year. It predicts that manufacturing output will fall by 10.9% during 2020, and has downgraded its forecast for recovery in 2021 from 6.2% to 5.1%.

“Manufacturing has begun to climb away from the abyss that it stared into earlier in the year,” says Make UK chief executive, Stephen Phipson. “But, make no mistake, it is going to be a long haul back towards normal trading conditions, with talk of a V-shaped recovery being nothing more than fanciful.

“Having emerged from three years of political uncertainty at the end of last year, increasing talk of a no-deal exit from the EU would be a final nail in the coffin for many companies,” he adds. “If we are to avoid this and, the avalanche of job losses that would follow in already hard-hit areas and sectors, it is essential that the first step towards a fuller recovery is provided by a comprehensive trade agreement with the EU.”

According to the Make UK/BDO Manufacturing Outlook Q3 survey, the balance on investment intentions fell to –32% in the third quarter from –26% in the previous quarter. While not yet reaching the levels seen during the financial crisis, the downwards trend is following a similar pattern to that seen at the end of 2008 and the start of 2009.

According to the survey, the balance on output improved to –36% from –56% in the second quarter, which was the lowest in the survey’s 30-year history. UK and export orders also improved from similarly historic lows to –36% and –34% respectively.

Despite the improvement in business conditions since the start of the pandemic, the employment balance has weakened since the second quarter, falling from –22% to –29%. This indicates that manufacturers are cutting back on staff, though whether it means they are adapting to the new environment by improving productivity with fewer staff is uncertain.

In line with other recent economic indicators, 17.6% of companies are now operating at full capacity, while a further 28% are operating at 75-100% capacity. Looking forward, 27% expect to be at full capacity at the start of 2021, with 35.4% expecting to be operating at 75-100% capacity.

UK manufacturers have been cutting back on investment and jobs, according to the Make UK/BDO survey. The figures show the balance of change as a percentage.
Source: Make UK Manufacturing Outlook survey

“While the manufacturing industry has managed to claw back some lost ground from a dismal Q2, the continued collapse in investment intentions is a real cause for concern,” says Tom Lawton, BDO’s head of manufacturing. “With a no-deal exit from the EU ¬– and associated logistics, customs and cost implications – looking increasingly likely, British manufacturers will need to step up a gear in order to compete internationally, and this will require significant investment in productivity and digitalisation improvements.

“No one is in any doubt about the financial challenges facing manufacturers, but turning the investment taps off now will have serious medium to long term implications,” he adds. “The Government must be alive to this risk and provide the support required to help UK manufacturers through this transition period and beyond. Other countries – perhaps, in particular, Germany – do provide good examples of consistent long-term support to their manufacturing sectors. The UK should look to adopt a similar approach.”

The companies that took part in the Make UK/BDO survey expect prospects to improve with the balance forecast for output for the next three months improving to –7%, compared to –56% in Q2.

There are marked differences between sectors, with basic metals reporting a balance of –75% as demand for steel from the automotive and aerospace sectors dried up. By contrast, other sectors such as electronics, machinery equipment and electrical equipment have all improved in line with the UK averages, with the forecasts for the coming three months showing a continuing improvement.

  • To view a digital copy of the latest issue of Drives & Controls, click here.

    To visit the digital library of past issues, click here

    To subscribe to the magazine, click here



"Do you think that robots create or destroy jobs?"



Most Read Articles