The outlook for
Britain’s manufacturers is deteriorating on the back of a cocktail of factors
related to Brexit uncertainty, weaker global growth and the impact of
protectionist policies according to a major survey published by EEF the
manufacturers’ organisation and business advisory firm BDO LLP.
According
to the Q4 EEF/BDO Manufacturing Outlook survey, while output and orders remain
positive there has been a clear moderation in the strength of balances
throughout the course of 2018, a trend which has accelerated in the final
quarter.
In
particular, there has been a clear divergence in the last quarter between
domestic and export orders, with the domestic picture backing anecdotal
evidence that companies are putting in plans to increase inventory levels ahead
of the UK’s exit from the EU. In contrast exports which have boosted the
manufacturing sector over the last few years appear to have hit the brakes.
Commenting,
Stephen Phipson, Chief Executive of EEF, said: “The moderation in manufacturing
performance over the course of this year appears to have gathered pace during
the final quarter with more clouds on the horizon than there have been for some
time.
“This
should come as no surprise given the significant political uncertainty at home
which is why it is essential that there is an agreement for the UK’s withdrawal
as soon as possible. If everything that can go right does then business and
consumer confidence should hopefully gather some steam next year with improved
prospects for growth. That’s the backdrop we’re working to, let’s hope it’s the
right one”
Tom
Lawton, Head of Manufacturing at BDO added: “Manufacturers have remained
reasonably confident over the course of the year but the sharp decline in
export orders is a real cause for concern.
“There
are likely to be a number of causes for the fall in exports this quarter;
uncertainty over our future relationship with the EU being the main one. In
addition, more subdued global growth, the fading effects of sterling
devaluation and the rise of protectionist policies appear to be starting to
take their toll on growth.
“Overseas
demand has helped sustain manufacturing growth over the last few years and the
EU remains the most important trading block for UK manufacturers. It is crucial
that Britain is seen to be open for business with the EU and other key global
markets. The result of the ‘meaningful vote’ next week will dictate the
government’s next steps and hopefully provide some much needed certainty as we
enter the new year.”
According
to the survey, the output order balance was +22% which is a healthy figure by
historical standards and represents the ninth consecutive quarter of positive
output balances. The forecast for the next three months has drifted down to
+19% but according to EEF, evidence suggests current output maybe more a
reflection of precautionary stockpiling rather than production driven by
demand.
The
picture for orders is far more mixed however. Whilst domestic orders have held
up (+11% from +14% in Q3) the balance for export orders has halved from +24% in
Q3 to +12%. Given the importance of exports in sustaining manufacturing growth
over the last few years, it appears that more subdued global growth, the fading
effects of sterling devaluation and more protectionist policies are now taking
their toll on growth.
The
survey also shows some divergence in the performance of manufacturing
sub-sectors with those related to construction performing well on the back of a
bounceback from the poor weather in the first half of the year and investment
in infrastructure. Those sectors related to investment are performing less
well, however, on the back of domestic uncertainty at home and weaker growth in
global capital expenditure off the highs of recent years.
As
a result of the much weaker picture employment and investment intentions have
weakened markedly. Whilst both are still in positive territory (for the eighth
consecutive quarter) recruitment intentions have slipped to +12% from +21%,
whilst investment intentions have seen a sharp decrease from +20% to +7%. This
is in line with official data for business investment which is set to show a
fall in 2018 and reflects the political and economic uncertainty.
Whilst
EEF has revised upward its growth forecast for manufacturing for 2018 from 0.9%
to 1.1% as a result of the weaker outlook and uncertainty it has downgraded its
forecast for 2019 to just 0.3% from 0.5%. GDP forecasts remain unchanged for
2018 and 2019, both at 1.3%.
The
survey covered 329 companies from 31 October to 21 November.
