UK manufacturing nosedives amid economic slowdown

26 September 2019 3 min. read
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The UK’s manufacturing sector is scaling back on investment at a moment in the economic cycle when it would usually ramp up spending, a new study has found. The news paints a potentially ominous picture for the industry’s prospects in 2020, with domestic orders declining and export orders falling despite a weakened pound.

The British manufacturing sector is hugely important for the national economy, employing over 2.7 million people and accounting for nearly half of all UK exports. The sector contributes 10% of all Gross Value Added to the UK. That is why the succession of reports suggesting the manufacturing scene is facing dire straits post-Brexit have so concerned the political and business worlds over the last three years.

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, a recent study found that UK manufacturing’s output had hit a 15-month low earlier in 2019, as the industry anticipated a cliff-edge Brexit.

Confidence has collapsed + Output down from Q2

Little seems to have improved since then, and even a change in leadership at the top of the UK Government has done little to clear the murky waters surrounding the UK’s economic and political future.

According to a new report from professional services firm BDO and industry expert Make UK, the global economic slowdown is exacerbating the nosedive British manufacturing was already locked into thanks to Brexit. The survey is the latest to suggest the world’s fifth-biggest economy is in danger of entering a recession as the Brexit turmoil intensifies.

According to the research, confidence in the sector is now at its lowest since the 2016 referendum that began the Brexit saga, while domestic new orders for manufacturing declined in the third quarter for the first time in three years. At the same time, export orders growth also weakened despite the recent fall in the exchange rate, something which had previously buoyed demand from overseas.

Investment intentions also turned negative for the first time in three years. Since Theresa May announced her intention to step down as Prime Minister, businesses seemed to take it as a sign No Deal Brexit was all but guaranteed, withdrawing over £3.37 billion in equity funds in the last three months. The analysts predict this investment is unlikely to return before the close of the year, with intentions to sink capital into UK projects set to flat-line over the next three months.

Employment down and investment is negative

Employment in the manufacturing sector is also expected to continue tanking until 2020. The number of vacancies in UK manufacturing has been falling consistently since the beginning of 2019, and is set to hit its lowest point since the close of 2016 by the end of the year.

Commenting on the findings, Tom Lawton, Head of Manufacturing at BDO, said, “In every region, companies are cutting back on investment in transport equipment, factory machinery, and IT, just at the point in the economic cycle when spending would normally increase. This reflects declining confidence ahead of a potential Hard Brexit, coinciding with worrying global trade conditions. On current trends the economy, and the manufacturing sector in particular, looks headed towards a very challenging winter.”