British manufacturing forging ahead despite political headwinds

British manufacturing forging ahead despite political headwinds

20 October 2017,   0 Comments

Earlier in the year we reported on the quarter 2 figures in the regular survey by manufacturing lobby group EEF in partnership with leading accountancy firm BDO.  It was interesting to note that UK manufacturing did surprisingly well in April, May and June, despite three months of unhelpful political upheavals and economic uncertainty.  As part of that industry sector, designing and making a wide variety of custom metal desks, shelves, birdfeeders, shopfittings and component parts, we’re delighted that that this strong performance has continued – despite an escalation of the turbulence and hot air coming from Westminster and Brussels.

While the politicians flounder manufacturing businesses thrive

Uncertainty is not good for business – it makes it hard to plan, invest and operate with confidence.  In quarter 2 UK manufacturers had plenty to contend with, thanks to the early rounds of the Brexit negotiations and six weeks of electioneering following Theresa May’s ill-judged decision to go to the country in search of a stronger mandate and bigger majority.

In quarter 3 the uncertainty, if anything, ramped up.  The election result has had many alarming consequences for the business community.  We now have a clipped government with a very slender majority and a Prime Minister struggling to assert their authority. Many are now bracing themselves for the possibility of Jeremy Corbyn at number 10 Downing Street, with John McDonnell at number 11 – which will not be a welcome prospect for many British business owners and managers.  What’s more, the slow progress of the negotiations between David Davis and his EU counterparts have increased the likelihood of a “no-deal” outcome on trade, another scenario that is very bad news for our economy, especially the manufacturing sector.

Despite all the external challenges facing British manufacturers over July, August and September we have proved remarkably unfazed by these distractions.  This is testament to the resilience of the sector and the quality of the products.  The EEF/BDO manufacturing survey shows that over half the companies surveyed over the quarter reported increased levels of output.  Equally encouraging, this positive performance was evident across almost all the sub-sectors, including base metals, metal products, mechanical, electrical, electronics, rubber & plastics, transport and other miscellaneous sectors.  The overall outturn this quarter exceeded most expectations at the start of the period.

Exports, exports, exports

What explains this excellent performance?  The answer, it appears, lies overseas. Political upheavals at home have had much less bearing on matters than the economic activity in foreign markets.  The number of businesses reporting an increase in export orders has mounted an impressive recovery over the first nine months of 2017, rising from -2% in the last quarter of the previous year to +33% in the last three months.  Most sectors covered by the survey were pretty bullish about the export prospects, with basic metals, mechanical and electrical sub-sectors riding particularly high on this export wave.

In terms of financial performance the report highlights a number of positives.  Some manufacturers are rebuilding margins if they are able to take advantage of the lower value of the pound to boost profits.  On top of this, improved cashflow, solid demand prospects and another uptick in company-level confidence has contributed to a strengthening of investment intentions.  Companies’ capital expenditure plans have been positive since the end of 2016 and investment plans have gained added momentum over the last quarter to achieve a level that is now at a ten quarter high.

In terms of our own business, Dymond Engineering anticipates continued strong demand for our design-engineering, value-engineering and metal fabricating services.

What does the future hold?

Will this strong performance by British manufacturers continue?  There are so many imponderables that making any kind of prediction with confidence is almost impossible.  On the downside there are understandable worries about the outlook for the UK economy in 2018 – firms may be upbeat about their own performance prospects the same cannot be said for the country as a whole.  The EEF/BDO report notes that confidence in the UK economy has slipped for the second consecutive quarter.  Weak official growth statistics, subdued forecasts from the Bank of England and the ongoing worries about the Brexit negotiations and the likelihood of getting a trade deal with the EU are all cause for caution.

Having said that, it’s all too easy to give more credence to the doomsayers.  One positive, of particular relevance to UK manufacturers, is the steadily rising wages in emerging economies.  A recent report by Steve Johnson in the Financial Times, and quoted in an article by Forbes Magazine, reveals that that China’s average wage level has tripled between 2005 and 2016.

https://www.forbes.com/sites/douglasbulloch/2017/03/03/china-is-running-out-of-cheap-rural-labor-and-its-because-of-failed-reforms/#29789c1b25c6

This may gradually make it less attractive for companies to outsource their manufacturing to the likes of Asia and South America, something that can only be good for manufacturing companies in the UK.  This trend also creates a hugely expanded middle class with the disposable income to buy consumer goods, thereby creating greater demand and boosting the world economy as a whole – a trend that is sure to create exciting opportunities for our domestic producers who are willing to export their goods to the BRICs and beyond.

Keep calm and carry on

Whatever happens, the British manufacturers who can avoid the wider political and economic distractions to concentrate on producing great products and do a great job of meeting customer needs, will continue to thrive.  That’s certainly where our focus lies – so if you need high-quality light-weight metal products including components, office furniture and retail display systems just get in touch.

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