A range of risks to growth continue to be identified by manufacturers, with several growth challenges seeing an increase in the proportion of respondents compared with last year’s survey figures.
Last year’s survey found that the majority of manufacturers agreed that economic uncertainty had become ‘the new normal’; for 2015, the risk of economic disruption has not disappeared from manufacturers’ worries. A quarter report it as a risk, and 17% report it as their top risk this year. Given the outlook and expectations for the overall global economic environment and certain specific markets, this is perhaps unsurprising.
Rising input costs remain top risk
Half of the companies surveyed report rising input costs as a source of risk for 2015 and a quarter report it being their top risk to growth. This remains as the most cited risk from both the 2013 and 2014 surveys, but it is now at its lowest level.
This year, companies have told us there are a variety of factors feeding into this view but non-wage employment costs do appear to be feeding into firms’ concerns, with auto-enrolment costs and possible payments from holiday pay changes rising up the cost agenda.
Exchange rate movements hit margins
Significant movements in exchange rates continue to be a source of risk for companies, with 38% saying this might have an effect on growth this year, a small increase for the proportion in the 2014 survey.
Sterling has seen significant fluctuations over the past year as a consequence of domestic political factors and expectations earlier in 2014 of an increase in UK interest rates – a factor that could be in play again this year.
The impact of exchange rate movements is not uniform across manufacturing. Over four in five companies who cited significant movements in exchange rates as a risk said this was because of the effect on margins on sales, compared with half saying it hit export sales volumes, two-fifths saying the effect of managing exchange rate volatility and a third saying the effects of changes on import costs.
Upward pressure on pay still expected
Manufacturers are also expressing some concern that, against a continuing uncertain outlook, there may be more upward pressure on pay settlements this year. A greater proportion of large companies see this as a risk than medium and small firms, nearly two-fifths, compared with a quarter of firms with 1-100 employees. Interestingly, despite a third of companies seeing this as a risk, just 8% cite it as the biggest risk they face in the year ahead.
External finance remains a worry for 7% of firms – unchanged from the previous year. However, cashflow problems and changing payment terms, usually extensions, are regarded as more of a risk with these trends becoming somewhat more prevalent across the sector over the past year.
Risk and opportunities finely balanced
The same proportion (35%) agreed that there were more risks than opportunities for their business in 2015, as disagreed, leaving 30% neither agreeing nor disagreeing with the statement.
Looking at responses by company size, a similar pattern emerges, with this fine balance between risks and opportunities. There is more of a difference looking at different sectors, however, with the metals and machinery sectors more likely to agree there were more risks than opportunities in the year ahead.