Tough decisions ahead as risks outweigh opportunities for UK manufacturers

Steve Warren, North West Region Director at EEF

UK manufacturers expect 2016 to be a year of tough decisions and more prominent risks, according to this year’s annual EEF/Aldermore Executive Survey. Faltering confidence is expected to continue into 2016 as manufacturers contend with the ongoing global economic hangover from 2015 and a landscape where opportunities are outweighed by risks.

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 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%).

However, 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.

Steve Warren, North West Region Director at EEF, says: “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.

“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.”

Carl Finlayson, Senior Regional Sales Manager – North West at Aldermore, says: “This year’s annual EEF/Aldermore Executive Survey clearly highlights the challenges that UK manufacturers are facing and reinforces the belief that 2016 will be another tricky year for the industry. Nevertheless, manufacturing businesses have their eyes open to mounting risks and are putting strategies in place to manage them. In particular, we are seeing continuing strong demand for finance to support growth, predominantly from SMEs operating in the sector.

“Manufacturing plays an important role in the UK economy and many manufacturing businesses, both large and small, are amongst the nation’s leading exporters. It is good news then that those manufacturers in a position to invest are generally able to secure the external finance that will enable them to do so. This should help to mitigate some of the anticipated risks and facilitate planned investment in technology and innovation, and also continue to reinforce the industry’s vital role in driving the UK’s ongoing economic recovery.”