BDO aims to champion manufacturing in every part of the UK. By partnering with EEF on our annual Regional Manufacturing Outlook report we can identify the sector’s strengths in each UK region and we can work with manufacturers on the different challenges faced around the country.
Here are my top five take-aways from this year’s report.
- Manufacturing matters in every region
We hear that manufacturing is only 10% of the economy – to me that is still a fairly large share of economic activity. But breaking this down in regional economies really highlights the local importance of the industry. Hundreds of thousands of people are employed making things in each region of the UK and whether that is a large proportion of the workforce, as in the North West, or a small one, like in the South East & London, this is highly-skilled and well-paid employment that generates new ideas that we can export and sustain economic activity from.
- It’s all about sector make up
The health of regional economies isn’t just about how big the manufacturing sector is, it’s also about the clusters of activity within regional boundaries. The diverging performance of industry sub-sectors over the past year has taken its toll in some regions. Our survey balances have shown the effects of the crisis-hit steel sector in the North East and the persistent challenges caused by the low oil price in Scotland.
In contrast, the recovery in pharmaceuticals and continuing momentum in the transport sectors – both automotive and aerospace – have boosted output and confidence levels in regions such as the Wales and the West Midlands.
- All regions have a take on Brexit
Discussions with manufacturers in the aftermath of the referendum reveal that confidence about the UK economy and firm level prospects has deteriorated compared with just a few months ago. Although there are few immediate signs that activity is being affected, companies are expressing a range of concerns about what happens next and what this might mean for their business.
The referendum has taken its toll on confidence across all parts of the country, but concerns are manifesting themselves in different ways in different regions. For example, companies in Wales and the North East are more concerned about the potential loss of EU grant support than other areas, while the South West and East Midlands have the highest proportion of companies with concerns about exchange rate volatility.
- There were reasons to be cheerful before, there will still be in the future
The referendum outcome has provided a bit of a shock to the system, and although the growth outlook seems more fragile, at least our starting point was one of recovery. The effects of the low oil price and concerns about a major downturn in emerging markets seemed to have been dissipating, while signs of improving demand in Europe were emerging.
The weaker exchange rate will be of benefit to some manufacturers, even if it’s difficult to predict for how long. More importantly, we’ve seen manufacturing survive and thrive through previous periods of economic uncertainty – a consequence of strong employee engagement, a focus on innovation and agile supply chains.
- Local and national policy makers have a lot to get right
While some of the sector’s fundamental are strong, policy makers can do a lot to shore up confidence and improve the business environment for manufacturers. The Regional Manufacturing Outlook report highlights the devolution deals emerging around the country. We hope to see these spur improvements in infrastructure networks and support for business.
There is also a big opportunity from the new Department for Business, Energy and Industrial Strategy. The argument that the UK needs a clear and ambitious Industrial Strategy has hopefully now been won, but it must deliver a cost competitive environment that will support manufacturers’ plans to innovate, invest and grow in the long-term.