Britain’s manufacturers have slashed their forecast for growth next year with a darkening picture for exports ahead of the departure from the EU, according to a major survey published today by Make UK and business advisory firm BDO.
The survey also shows the brutal impact of the pandemic with the sector forecast to see a 12% drop in output this year, with Make UK substantially downgrading its growth forecasts for 2021 to just 2.7%, down from 5.1% last quarter.
Make UK warned that should the UK leave the EU with no trade agreement in place then this forecast may be revised further given the potential for significant damage to manufacturing, with the motor vehicles sector in particular especially fearful of the potential impact of any tariffs.
In addition to the darkening picture for exports, the survey shows investment intentions have now been substantially negative for three quarters in a row, a trend which Make UK believes is likely to worsen in the event of the further political turmoil that ‘no deal’ will create.
“Manufacturing has stepped back from the abyss that it stared into earlier in the year. But, make no mistake it is going to be a long haul back, with talk of a V shaped recovery nothing more than fanciful. However, having endured over four years of political turmoil, combined with the pandemic many in industry are feeling like an exhausted boxer in the final round of a bout, with a ‘no deal’ exit from the EU potentially landing a knockout blow.
Should this happen the nascent recovery is likely to go into reverse, with significant damage to manufacturing and job losses following in already hard hit areas and sectors. It is essential that the first step towards a fuller recovery is provided by a comprehensive tariff and, quota free, trade agreement with the EU, with a sensible range of easements to allow business some time to adapt.” says Stephen Phipson
According to the survey the balance on output improved to -5% which, to give some perspective, compares to -36% and -56% in the previous two quarters, the latter being the lowest balance recorded in the survey’s 30 year history. While the output balance for the next quarter is forecast to improve slightly to -3%, it remains negative highlighting an anaemic picture ahead for the sector and, the highly unlikely prospect of a v-shaped recovery as far as manufacturers are concerned.
The survey also shows a similar pattern for total orders with the balance improving to -3% from -40% and -53% respectively in the previous two quarters. However, looking forward, the export order balance is forecast to drop sharply to -14%, highlighting the concerns manufacturers have about the impact on exports as the UK finally leaves the EU.
Whilst the balance on investment intentions also improved to -11% from -32% and -26% respectively in the previous two quarters it has now been negative for three quarters in succession. While this may reflect the combination of the impact of the pandemic, political uncertainty and the debt many companies will have accumulated to stay afloat, to give some perspective of the extent of cutbacks the balance in the first quarter was +20% as the result of the election a year ago unleashed a short lived investment boom.
The cuts to investment follow the latest OBR forecasts that cumulative business investment by 2025 will be 10% lower than forecast in March.
The balance for recruitment also improved to -14% from -29% and -22% in the previous two quarters and is forecast to improve to just -1% in the next quarter. Make UK believes, however, that rather than an indicator of companies preparing to recruit, it is a sign that the sharp cutbacks in employment and redundancies have already taken place as well as the helpful impact of the extension of the Job Retention Scheme.
