Home Economy Manufacturers refuse to put investment plans on hold
Sector makes the most of weak sterling and focuses on international opportunities
More than half (51%) of UK manufacturers see the weaker sterling as a key benefit for their business over the next 12-24 months, with 44% refocusing on internationalisation in light of the UK’s decision to leave the EU.
That’s according to a new report by accountancy and business advisory firm BDO LLP, in association with the Institution of Mechanical Engineers (IMechE).
It found that, despite more than half (51%) of British manufacturers still believing the UK’s decision to leave the European Union would have a negative impact on the manufacturing sector and their business, they refuse to let it dent their growth ambitions and are not putting investment plans on hold.
According to the BDO/IMechE research, a weaker sterling was cited by 51% of respondents as a key opportunity for growth. Low interest rates (20%) and a lower regulatory burden (17%) were also seen as benefits to their business. However, two thirds (67%) of respondents highlighted currency volatility and a changing political landscape (42%) as the two biggest risk factors to manufacturing caused by the Brexit vote.
Looking ahead, internationalisation is central to the strategy of 44% of the businesses surveyed with over one third (39%) saying they will target markets outside of the EU as a result of the Brexit vote. While not a majority, this is a substantial number given the costs and workload involved for any business in establishing foreign markets.
Sixty-five per cent of manufacturers said they are making no plans to reduce their investment intentions – a positive sign for the sector. Of those that are, however, reducing spend on outsourcing (14%) was the most popular choice.
Sixty per cent of manufacturers are continuing investment in research & development (R&D) and innovation – a key element for growth and competitiveness. 82% of the survey respondents said it is very important for the government to continue R&D and innovation funding in the engineering and manufacturing sector.
But 45% of manufacturers have little or no confidence that the current Government can negotiate a favourable trade deal with the EU. 37% favoured the UK remaining a member of European Economic Area (EEA), which would include access to the single market, free movement of people, financial contribution to the EU and accepting some EU regulation.
According to the report, when questioned on an industrial strategy, the single most important factor for UK manufacturers, at 79%, is to have a long-term strategy with a 15-20 year horizon. 69% said an education overhaul was needed to deliver future employees and skills, 60% said improved tax incentives and 50% opted for a dedicated minister for manufacturing.
Martin Bell, head of BDO LLP’s manufacturing sector team for Scotland, said: “The manufacturing sector remains critical to the future success of the UK economy and that is particularly the case in Scotland where other traditionally successful sectors are under pressure or experiencing a downturn.
“Despite uncertainty at home and abroad, it is promising to see Scottish firms pushing forward and adjusting their business plans to make the most of the opportunities available.
“Brexit means a period of significant challenge and vulnerability for the manufacturing sector and therefore it’s important that the Government delivers a practical and robust industrial strategy that is focused on the needs of the manufacturing sector. Hopefully we will see some announcements to help this in both the UK Autumn Statement later this month followed by the Scottish Budget in December.”
Philippa Oldham, head of manufacturing at the Institution of Mechanical Engineers, said: “Manufacturers are clear that they need confidence in the skills pipeline and the country’s industrial strategy, in order to properly prosper. As the UK gears up to leave the EU, this is more important than ever.
“Despite many manufacturers disagreeing with the Brexit vote, these findings show that they are committed to making it work. As Government begins the difficult task of negotiating the UK’s exit from the EU, it must work closely with industry and manufacturers to ensure we get the best deal for the country.”
BDO is a global accountancy and business advisory firm, which operates in 154 countries with 64,500 people working out of 1,400 offices worldwide, including in Edinburgh.