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UK manufacturing sees orders slow amid Brexit anxiety

11 April 2019 Consultancy.uk

Manufacturing in the UK saw negative growth for the end of 2018, reflecting a wider slowdown in the UK economy to 0.2% for the quarter, followed by three months at the start of 2019 which saw continued softening in orders. With uncertainty still hitting the sector ahead of Brexit’s deferred deadline, the industry faces a difficult 2019.

Despite a perpetually changing economic landscape, manufacturing remains a keystone industry in the UK. Optimism in the industry has been riding high in recent years, reflecting the perceived potential of automotive technologies, but last year saw a slight dip in business performance, ahead of what seems set to be a turbulent period for British manufacturing. Ordinarily, the sector might have expected to recover its footing relatively quickly, but with the looming spectre of Brexit making the economy’s future completely uncertain, this has not been the case.

The uncertainties of Brexit have continued to create headaches for companies on both sides of the channel. As contingency planning continues, new analysis from BDO and the Make UK explores how manufacturing – a segment likely to be hard hit by Brexit – has fared in the final quarter of 2018.

Output balance stable

Manufacturing remains a key industry in the UK, generating around 10% of total economic output and supporting around 2.7 million jobs. Yet while the industry has seen a number of years of strong optimism as well as demand, Brexit is set to throw a spanner in the works, with a range of manufacturing companies leaving the UK, or considering it. Indeed, UK manufacturing’s output currently sits at a 15-month low as the industry anticipates a cliff edge Brexit.

In terms of growth for various parts of the UK economy, a slowdown was noted in the final quarter of 2018 compared to Q4 2017. Manufacturing, in particular, saw growth declines coming in at almost -1%, with a similar trend in production. Construction saw a sharp contraction, falling 2 percentage points to below 0% growth in December 2018. Only services managed to have positive % growth in the final quarter. The final quarter as a whole saw growth of 0.2% in the UK economy – the lowest level in six years.

Output across most sectors in the industry remains positive, with the percentage balance of change in output at 22%. The result is the tension quarter of positive percentage balance of change, with stagnation on the final quarter of 2018. The firm is projecting a slight softening of output going into Q2 2019. The firm notes that there is some stockpiling taking place, with orders and outputs unaligned going into 2019.

Order balance remains positive but dips further

While there is a broadly positive picture for output, the firm does note considerable differences between subsectors. Basic metals for instance, saw a net 24% fall to -18% over the past three months. Metal production is also seeing relatively poor performance as demand from the automotive industry enters a period of acute uncertainty. However, most industries are to see improved output on balance, with rubber & plastic increasing from a net 11% to net 56%.

Export trade

Having been buoyed by the lowered value of the pound, UK export orders are up slightly on the previous quarter, but remain well below the most recent peak in Q3 2018. Domestic orders were relatively strong, with a year between the most recent peaks for the segment. However, Q2 2019 looks to see domestic orders fall sharply, to half Q1’s result, while export orders too are set to see declines.

The decline reflects a decrease in basic metals, possibly a reflection of changes affecting the auto industry. Meanwhile, export orders are down due to Brexit cross-border uncertainty – the effect of the sterling devaluation unable to continue to buoy the market. Basic metals and metal products are both in negative territory for the coming three months.

Investment and employment intentions

UK employment figures reached new milestones, with total unemployment down to 3.9% while participation rates hit record highs. Employment planning continues to be in net positive territory, with a net positive balance of 22% in Q1 2019. The coming months are projected to see a slight dip, again, largely resultant from uncertainties around Brexit. Basic metals is the sector most likely to see a negative trend, reflecting the expected decline in orders.

Investment intentions meanwhile continue to be in positive territory. However, again, the now acute uncertainty about Brexit – the UK government has boxed itself into a corner – mean that confidence around investment could wane rapidly.

Commenting on the wider economy, Peter Hemington, a Partner at BDO, said, “Manufacturing firms have been ramping up their preparations for a disorderly Brexit, in large part through the stockpiling of imported goods. This has had the effect of inflating activity levels… It’s too late to do anything about this now.  But a disorderly Brexit would be far worse than the current relatively mild slowdown, possibly disastrously so… We are concerned it looks more likely than ever that we will exit the EU without a deal.”

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Consultants working on Brexit say companies are not prepared

08 April 2019 Consultancy.uk

FTSE 100 companies remain dangerously underprepared for Brexit, with just days before the latest deadline is due to hit for the UK’s withdrawal from the EU. A new survey has found that 77% of consultants and clients specialising in the area believe the UK’s leading companies have not taken appropriate action, amid the continuing uncertainty that clouds the outlook of the UK economy.

With the Brexit process having stalled on multiple occasions, to the extent Parliament is now hoping for a second extension of the process, just days before the EU’s second deadline is due to occur, it is safe to say that nobody knows what the future holds for the UK. The Government are not the only ones who seem dangerously underprepared for the UK’s exit from the EU, however. With such uncertainty continuing to cloud the economic, social and political outlook for the UK, it is all too easy for businesses to be caught in the headlights, trapped in a perpetual wait-and-see mode.

Businesses across Europe and the world have been bombarded with warnings that Brexit could have dire consequences for their bottom-lines, unless they take pre-emptive action. Despite this, more than 40% of respondents to a recent poll have suggested they believe post-Brexit life will be business as usual, while a similar number had yet to take significant action on the matter. That was in November, when there might have still been time for firms to right their course.

How prepared are the top 100 companies in the UK for Brexit

Now, however, a new survey from River Partnership has suggested that UK businesses may still be failing to take precautionary measures on Brexit – which is currently slated for April 12th, assuming the EU rejects the UK Parliament’s request for another stay of execution. The research specifically targeted interim management consultants, mainstream consulting leaders and corporates looking to utilise expert but flexible resources. This saw the cross examining of 60 so-called “Brexperts”, each of whom lead a prominent Brexit programme for either a global consulting firm or a leading multinational corporate.

While the Brexit spend of businesses on consulting firms has reportedly reached a hefty £75 million, more than three-quarters of River Partners’ community felt that the top 100 companies of the UK remain unprepared for Brexit, whatever form it takes. Only 23% of respondents felt that these firms were well-prepared for the UK’s divorce from the remaining bloc of 27 countries. With Brexit programmes typically lasting longer than 6 months and the outcome of Brexit both in terms of content and time still unclear, the researchers stated they anticipate continued, growing demand for Brexit change skills and policy expertise.

Time running out

Of the top firms which were prepared, River Partners singled out Bank of America Merrill Lynch and BMW for special praise for their Brexit strategy thus far. Bank of America Merrill Lynch was lauded for having had “a strategy in place from the start”, while undertaking a detailed planning programme and executing timely resourcing to deliver on key milestones. Meanwhile, German firm BMW “began planning well in advance”, and was able to make some important decisions earlier than competitors. With the German automotive sector facing a major reduction of its workforce due to Brexit, such planning is crucial for the firm.

For companies still weighing up their options, River Partnership’s Brexperts recommended that firms take note of two key points. First, with organisations in the market struggling on Brexit readiness, taking decisive steps now will assist in the long-run – and may even help get a leg up on competitors. Second, companies need to act as quickly as possible. Ideally, companies would have acted before the start of April; however, with a brief extension of the Brexit process, there is still some time left. Failing to act is a risk; the later firms leave it, the more demand for advisory work and other external services will likely exceed supply.

Commenting on the findings, David Young, Director at River Partnership, concluded, “Many Brexperts felt that recent developments in Parliament have created such a mess that more time is likely to be given so that the UK can find a way towards a more respectable solution. Whether they seek a Norway plus model or go back to the drawing board for a Canadian style deal is highly debatable... Any plausible way forward will take time to materialise and, with the added complication of the European Parliament elections starting on the 23rd May, extending Article 50 will not be a simple task.”