Is the manufacturing sector suffering from a Brexit hangover?

Is the manufacturing sector suffering from a Brexit hangover?

KPMG and Mazars have both cited the slowing in the global markets that is having a knock-on effect for the sector

It is the morning after the night before, as we wake up to the realisation that, once again, Theresa May’s Brexit deal was voted down in parliament by a majority of 149. Next on the agenda will be a parliament vote on no deal.

“At this point, an extension (towards what end?) might look very probable, we are at the stroke before midnight with no resolution at hand,” said Mazars’ chief economist, George Lagarias.

“Factors such as macroeconomic trade wars, regulation, technology, and the fast pace at which the world is moving means that manufacturers must be more competitive and agile is they want to remain viable and thrive.”

To further complicate matters, Philip Hammond will be announcing the contents of the Spring Statement at 12:30pm today (Wednesday 13 March), but the question must be asked: what decisions can be made when the future remains so uncertain?

Lagarias argued: “Predictions are off the table, and investors should not rule out a hard Brexit, even though we still believe the scenario garners less than 10% probability.”

That 10% chance is apparently enough to deter international investors as, according to a report from KPMG, 62% of UK businesses believe that Brexit has impacted potential international investment into their industries.

Of respondents, automotive businesses proved to be most effected by this trend, with 78% of them admitting that international investment plans have been delayed or paused.

“The UK’s attractiveness to international firms should not be downplayed.”

“Recent headlines have shown just how much the automotive sector in particular is feeling the pinch, and this was echoed by our findings,” Stephen Cooper, head of industrial manufacturing at KPMG UK, has revealed.

He continued: “For all manufacturers, however, the threat of global competition has always been in the background, irrespective of Brexit.

“Factors such as macroeconomic trade wars, regulation, technology, and the fast pace at which the world is moving means that manufacturers must be more competitive and agile if they want to remain viable and thrive.”

KPMG further stated that 54% of UK manufacturers are planning to move some aspect of their operations abroad in the next three years.

“Disruption is everywhere, but, if viewed as an opportunity and navigated strategically, it can help businesses retain the edge the UK needs to have on its international peers.”

Nonetheless, Lagarias has highlighted that improvements in the economy can be seen in some areas, if only we would look at the economy through a wider lens.

He said: “The slowing global economy might fit the market narrative, but that would mean that the markets ignored a lot of data, such as improving global service PMIs, US and EU industrial production, which buck[s] the trend of growth deceleration. [At Mazars] [w]e feel that it is more likely that, after a strong January and a decent earnings season, the market may be consolidating levels until the next catalyst comes along.”

Cooper added: “Disruption is everywhere, but, if viewed as an opportunity and navigated strategically, it can help businesses retain the edge the UK needs to have on its international peers.”

“With squeezed margins, productivity challenges and a tumultuous geopolitical environment, it is little wonder that manufacturers are unsettled. However, it is rarely ever one-way traffic. So, whilst some may be looking at other destinations, the UK has many redeeming qualities for manufacturers, so they must ensure that any moves being planned are for strategic reasons.”

“Whilst nobody can predict the future, there are steps the UK’s manufacturers can take to achieve their growth ambitions and become more competitive, both nationally and globally.”

As it stands, the UK manufacturing sector makes up 10% of the country’s output. The sector undeniably relies heavily on international investment to “power productivity, innovation, and growth.”

Furthermore, 44% of UK manufacturers believe that the UK’s quality of infrastructure and skills are drivers for international firms choosing to invest—but such an amount of instability as Brexit is causing is proving to be a deterrent.

Cooper concluded: “The UK’s attractiveness to international firms should not be downplayed. For it to be sustainable in this environment, however, more can be done—such as further government support to strengthen infrastructure and international connections, and a focused effort on strategic growth, productivity, skills, and innovation.

“Whilst nobody can predict the future, there are steps the UK’s manufacturers can take to achieve their growth ambitions and become more competitive, both nationally and globally. Whether it be through identifying areas to experiment, collaboration and partnerships, or investing in people, processes, and technology solutions, manufacturers should focus on what they can do now to achieve that all-important competitive edge.”

 

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