Manufacturers fear ‘Brexit’ fallout as trading outlook weakens
19 Jul 2016
Business confidence among UK manufacturers has tumbled following the vote to exit the EU, according to a survey conducted by EEF, the manufacturers’ organisation.
The outlook for the next six months shows signs of decline and forecasts now point to the sector remaining in recession until at least the end of 2017, EEF said.
While no immediate impact on trading conditions has yet been felt in the sector, its survey revealed that many manufacturers expected trading conditions to weaken over the next six months.
All of our forecasts now point to our sector remaining in recession until at least the end of 2017. This means that, more than ever, we need government to keep a firm and steady hand on the tiller
Terry Scuoler, chief executive of EEF
While some impact was reported among respondents, over 80% of those surveyed said their order intake was unchanged or it was still too soon to say what the impact had been.
But while the immediate picture looks promisingly steady, the same cannot be said of the outlook in six months’ time, the EEF report said.
“All of our forecasts now point to our sector remaining in recession until at least the end of 2017. This means that, more than ever, we need government to keep a firm and steady hand on the tiller," said Terry Scuoler, chief executive of EEF.
Manufacturers fear that EU orders are at risk, with a balance of 12% of companies predicting a decline, although this was matched by those expecting non-EU orders to increase.
The biggest concern, however, was demand from UK customers, with almost three-in-ten firms (29%) bracing themselves for UK orders to decline.
The survey also revealed that overall confidence in the UK economy and manufacturers’ own business performance for the year ahead had dived.
Key risks identified by respondents included exchange rate volatility (75%), political uncertainty (65%), expectations of increased costs (59%) and weaker demand (49%). Only 5% of firms did not identify any risks to their business in the year ahead, the EEF report said.
On the flipside, over half of the respondents (53%) saw the weaker pound as an opportunity. A third of manufacturers (32%) reported rising input costs, with over half (51%) expecting this to be the case over the next six months.
When each of the risks, opportunities and uncertainties were taken into account, 58% of respondents said they would be reviewing their UK recruitment and 57% would be reviewing UK investment.
“In both cases 16% of firms admit that they will be hitting the review button immediately, while for others it will be part of their normal planning cycle,” said EEF.
While 43% of companies’ investment plans will continue unchanged, just under four-in-ten firms (38%) expect to be investing less in the UK over the next year.
Factoring in all of the above, EEF has forecast that the sector is likely to remain in recession until at least the end of 2017.
“Rather than an immediate storm, it is clear that manufacturers see the real risks from the referendum outcome presenting over the next six months to a year,” said Scuoler.
“While many are acutely aware that we are still in the early days, exchange rate volatility, political uncertainty and the danger of increased costs are already on their risk radar and subsequently we can already see confidence starting to drain away.
“The post-referendum drop in the value of sterling has been helpful to some manufacturers, but the overall impact is too nuanced for it to be glibly hailed as the hero of the piece.
”In the next six months, over half of manufacturers expect input prices to increase and that probably tells you everything about why the drop in sterling is a double-edged sword.”
