Brexit negotiations ‘crucial’ for continued manufacturing growth

Charlotte Horobin

East Midlands manufacturers have seen an improvement in confidence in the past three months, according to an influential report.

Output balance has reversed its recent downwards trend, up from 9% to a healthy balance of 21%, according to a major survey published today by EEF, the manufacturing organisation and accountancy and business advisory firm BDO.

The report says this positive picture is expected to be sustained into the final months of this year with domestic orders also rising to 37%, up from 17% last quarter. The improvements in fortune come on the back of a good performance from the food and drink sector, and construction related industries following some weather related weakness across the start of the year.

Export orders, however, bucked the positive trend, and stayed in the red, down by one percentage point from -11% to -12%. But the overall picture was positive with total orders up from 0 to 37% in the last three months on the back of domestic demand. The overall improvement in confidence also supported positive recruitment figures, up from 9% to a positive balance of 21%.

The survey, however, points to a fall in capital expenditure plans, with the investment balance down from 10% to 5%, well below the level seen at the end of 2017. Uncertainty over Brexit and the current political environment seems to be leading to companies delaying investment until there is further clarity.

Nevertheless the largely positive trend is reflected nationally, as industry demonstrates its resilience but risks are mounting.

Looking ahead, the reports suggests that confidence about firm level prospects is proving to be more durable than might have been expected, but the threat of escalating trade tensions and heightened concerns about a Brexit outcome that fails to deliver frictionless trade could quickly make trading conditions more difficult. Moreover, with the recovery in investment intentions unevenly spread across manufacturing sectors, we are cautious about the sector closing the productivity gap with competitors. Our central expectations is that manufacturing growth is still on the cards this year and next, but risks to that outlook are increasingly present.

Charlotte Horobin, region director East Midlands said: “There are both reasons for cheer and caution in our latest survey.

“UK manufacturers in many industries are continuing to benefit from growth in the global economy; expanding their exports and driving ahead with new investments. But this is not an industry-wide phenomenon.

“Trade tensions, the Brexit debate reaching a crescendo and some wobbles in confidence about the UK’s economic outlook continue to make their presence felt across a number of manufacturing sectors. If these sources of uncertainty prove to be short-lived then growth across manufacturing looks like more of a sure thing next year. If not, then government will need to act to prevent investment plans from faltering.”

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