Manufacturing output falls to 15-month low as industry anticipates cliff edge Brexit

The UK economy has had a stuttering start to 2019, with output in the manufacturing sector plunging to its lowest point since October 2017, according to new research from accountants and business advisors BDO.

Many manufacturers in the North West will be affected.

BDO’s Manufacturing Index, which tracks business output growth in the sector, fell by 0.23 points to 98.37 in January.

Although manufacturing firms have been ramping up their preparations in anticipation of a disorderly Brexit, January’s decline points to an underlying weakness in the sector.

It is likely that stockpiling activity has masked an even greater fall in output than is suggested by these figures.

In the month that Theresa May saw her proposed EU Withdrawal Agreement crushed by MPs, UK business confidence also suffered a significant decline.

BDO’s Optimism Index, which tracks firms’ expectations of their performance over the coming months, fell from 100.16 to 99.98 in January.

This marks a decrease of 2.11 points from January 2018 and is the first time that the index has fallen below 100 since December 2016.

The manufacturing sector was worst hit by the collapse in confidence, with BDO’s Manufacturing Optimism Index falling 0.5 points to 104.4 in January.

This reflects concerns raised by manufacturers including Nissan, Airbus, which employs 6,000 staff at its Broughton plant near Chester, and Siemens, who have repeatedly warned that uncertainty around the UK’s future relationship with the EU is not helping companies plan for the future.

The UK’s services sector – which is critical to the success of the economy, accounting for approximately 80% of GDP – also experienced a malaise.

At 97.10, output remains well below the long-term average growth rate of 100, despite witnessing a marginal improvement in January.
Ed Dwan, partner at BDO, said: “With around 15,000 manufacturing companies in the region, this is having a big impact here in the North West.

“Despite the fact manufacturing firms have been ramping up their preparations for Brexit through the stockpiling of imported goods in many cases, it hasn’t been enough of a boost to negate the wider issues.

“It has had the effect of inflating activity levels so the underlying slowdown is probably rather worse than suggested by our headline figures.

“Stripping out the impact of these Brexit preparations, there is a real risk that the economy will contract in the first quarter.”

He added: “We believe that the Government should seek an extension to Article 50 as soon as practicable to give itself the time to reach an acceptable Brexit compromise.”