Brexit uncertainty brings reality check for manufacturing investment

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Manufacturing investment slowdown amid current uncertainties – EEF/Santander survey

Concerns over adoption of Automation and impact on productivity

  • In the past two years manufacturers invested 6.5% of turnover in new plant and machinery, down from 7.5% last year.
  • The slowdown was predicted in last year’s report, given uncertainty surrounding Brexit
  • Looking ahead, a majority of manufacturers (51.1%) intend to spend more on plant and machinery over the coming two years. It remains finely balanced however.
  • For those who intend to spend more, there is a need to replace equipment which is becoming obsolete, as well as take advantage of new opportunities on the back of an improved global outlook.
  • For the other half, Brexit uncertainty is holding back investment plans, while there is also little focus on investing to improve process efficiency.
  • This is backed up by international data, which shows that the UK lags behind its European counterparts in investment in machinery and robots, with a number of barriers at play including cost, uncertainty about returns and skills.

Investment by Britain’s manufacturers has seen a reality check in response to the continued political uncertainty according to a major study published today by EEF, the manufacturers’ organisation and Santander.

According to the EEF/Santander Annual Investment Monitor, while demand conditions 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 at the other end of the spectrum thirteen per cent of companies are holding off investment altogether until there is further clarity on a Brexit deal.

Taken together this leaves the outlook for investment by manufacturers finely balanced with only a narrow majority expecting to be investing 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.

Commenting, 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 future 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.” 

Commenting, Paul Brooks, Head of Manufacturing, Santander, said:

“While the Monitor shows that investment by UK manufacturers is down on last year, it is encouraging to see that just over half of manufacturers intend to spend more over the coming two years. The Monitor shows that uncertainty surrounding the Brexit negotiations has impacted some firms’ investment decisions,  despite this, 51.5% of businesses responded that they are either increasing investment due to Brexit opportunities or that Brexit has had no impact on their investment plans.

“The Monitor clearly highlights the need for businesses to invest more in automation, with the report showing that the UK investing significantly less in machinery than our European counterparts. At Santander, we strongly encourage those firms that are holding back to focus their investment decisions on increased automation which can lead to productivity gains. By investing more in this area, UK Manufacturers can improve their competitiveness and Santander has a range of support to help them do this.”

The survey covered 328 companies between 2 and 23 August

ENDS

About EEF

EEF, the manufacturers’ organisation, is the representative voice of UK manufacturing, with offices in London, Brussels, every English region and Wales. This year we celebrate 120 years of backing Britain’s makers.

Collectively we represent 20,000 companies of all sizes, from start-ups to multinationals, across engineering, manufacturing, technology and the wider industrial sector. We directly represent over 5,000 businesses who are members of EEF. Everything we do – from providing essential business support and training to championing manufacturing industry in the UK and the EU – is designed to help British manufacturers compete, innovate and grow.

From HR and employment law, health and safety to environmental and productivity improvement, our advice, expertise and influence enables businesses to remain safe, compliant and future-focused.

About Santander UK

Santander UK is a financial services provider in the UK that offers a wide range of personal and commercial financial products and services. It has brought real competition to the UK, through its innovative products for retail customers and relationship banking model for UK SMEs. At 30 June 2017, the bank serves around 14 million active customers with c19,500 employees and operates through 826 branches (which includes 61 university branches) and 65 regional Corporate Business Centres. Santander UK is subject to the full supervision of the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) in the UK. Santander UK plc customers are protected by the Financial Services Compensation Scheme (FSCS) in the UK

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