Machinery investment slowed over 2017, EEF survey reports

Investment in machinery has dropped since 2016, with a survey by EEF, the manufacturers’ association, and the Santander bank, finding a decrease from 7.5 per cent to 6.5 per cent year on year in 2017.

Low wages, political uncertainty with the European Union and lack of incentives to invest in new equipment have dragged down spending by manufacturers. A decrease in the value of sterling since the EU referendum has made machinery imports more expensive.

According to the EEF/Santander Annual Investment Monitor, while customers’ demand should be spurring on investment, just one third of companies say that Brexit has had no impact on their plans. A similar proportion are only investing to satisfy current plans and waiting for clarity on any deal before investing further, while thirteen per cent of companies are holding off investment altogether until there is further clarity on a Brexit deal.

Only a narrow majority expecting to invest more on new equipment in the next two years. While the reticence emanating from other parts of the global economy has diminished, the survey reflects increasing Brexit-related uncertainty.

This indicates that while manufacturers may be investing to satisfy current plans or, expand capacity, they are not investing in improving their production capacity. The survey’s spotlight on investment in automation shows that industry is making only slow progress on automating manufacturing processes, with industry being held back not just by caution but also by challenges from the cost of technology, uncertainty about returns and the capability to successfully implement change.

In response, EEF considers that boosting investment and productivity should be at the forefront in the forthcoming Budget statement.

Lee Hopley, Chief Economist at EEF said: “Manufacturers have navigated a panoply of demand-related challenges in recent years, which have taken a toll on the sector’s appetite and ability to invest. With global demand on the up conditions should be ripe for industry to make new investments in capacity and productivity enhancing technology. But Brexit means the outlook for investment is not clear cut.

“Political uncertainty is adding to the hurdles of cost and lack of skills in holding back spending on automation technology. The forthcoming Budget can at least start to address the latter of these challenges, starting with an ambitious industrial strategy that tackles barriers to investment head on and ensures UK manufacturers are equipped to compete for the future.”