“Economic hangover” from 2015 means a tough start for UK manufacturers

The “global economic hangover” from 2015 and a “landscape where opportunities are outweighed by risks” are two reasons the UK’s manufacturers expect 2016 to be a year of tough decisions, says a new survey.

According to this year’s annual EEF/Aldermore Executive Survey, faltering confidence is expected to continue into 2016, fuelled by the uncertain economic situation, EU membership, currency markets and business costs.

While almost a quarter of companies (23%) see more opportunity than risk in the year ahead, they are outstripped by the 44% of manufacturers who see more risks. This pessimistic view, suggests the survey, is shared across sectors and is particularly strong amongst larger companies.

Global economic volatility is a key driver, with manufacturers identifying significant movements in exchange rates (42%), economic volatility in a major market (36%) and uncertainty around the UK’s place in the EU (36%) as the top risks they face this year.

At the same time, over a third of manufacturers (36%) see upward pressure on business costs as a possible risk to growth in 2016, with pressure expected to come from a range of sources.

This adds up to another year of concern for manufacturers - four in ten (40%) expect to see global economic conditions deteriorate further in 2016, while just 23% expect conditions to improve. They are, however, more positive about conditions closer to home - a third say an improvement in industry (33%) and UK economic conditions (32%) is on the cards, outweighing those expecting conditions to take a turn for the worse.

Despite this, expectations are still substantially lower than at the start of 2014. This has led to the UK losing some of its gloss, with the number of manufacturers viewing it as a competitive location for manufacturing falling from 70% last year to 56% this year.

However, the survey does contain some good news. Despite the headwinds, over half of manufacturers (55%) expect to increase productivity, while over four in ten expect to boost UK sales (43%) and export sales (43%). To support growth, their main focus will be on increasing investment in technology and innovation (41%), selling into new export markets (39%) and collaborating with customers and suppliers to ensure supply chain flexibility (37%).

But, while proactively planning to help shield themselves from the impact of economic factors and to deliver growth, it’s also clear that manufacturers are aware that tough conditions can mean tough decisions. As a result, organisational changes (35%), workforce restructuring (34%) and ‘across the board’ cost-cutting (31%) all feature on manufacturers’ list of company priorities for the year ahead.

“The gloom that took the shine off UK manufacturing’s performance in 2015 is set to continue into 2016. But, while expecting similar challenges as those seen last year, manufacturers are still planning for growth,” commented Terry Scuoler, Chief Executive of EEF.

“There is particularly good news about the number looking to prioritise investment in technology and innovation and those looking to explore new export markets. These are positive and proactive steps. At the same time, however, tough conditions call for tough decisions – and restructuring and cost-cutting efforts are clearly high on the agenda for some.

“Last week’s warning from the Chancellor about a dangerous cocktail of economic risks chimes with concerns reported by manufacturers. With worries also extending to the competitiveness of the UK business environment this is a wake-up-call and I would urge the Government to continue to work proactively with industry to mitigate risks and boost opportunities for our sector.”

Full report: (https://www.eef.org.uk/resources-and-knowledge/research-and-intelligence/industry-reports/eef-aldermore-executive-survey-2016)