£10bn of locked liquidity ‘trapped’ in UK manufacturing

Posted on 28 Mar 2014 by The Manufacturer

Up to £10bn of locked liquidity will be trapped in UK manufacturing over the next four years due to the outright purchasing of equipment and machinery, according to a new report.

The study, carried out by Siemens Financial Services (SFS), shows the figure represented 0.12% of the UK’s GDP which is in stark contrast to other European and emerging economies.

France  has £23bn of locked liquidity, which amounts to 0.30% of its GDP, while Germany has £48.4bn, standing at 0.44%.

Considerable amounts of liquidity are also trapped in the manufacturing sector of emerging economies such as £1,129.1 billion in China (2% of GDP) and £137.3 billion in India (0.70% of GDP).

Trapped capital cannot be deployed in other business-driven activities, such as new product development, sales initiatives or increase in production due to spikes in demand.

Locked Liquidity levels represent, on average, around three quarters of a percent of manufacturing turnover, with asset financing emerging as a recognised method by manufacturers of unlocking liquidity due to drawn out payment processes.

“Industrial companies need to refresh, renew and extend their equipment, plant and technology to compete in the fierce global marketplace,” says Brian Foster, head of industry finance, SFS.

“However, they need to fund acquisition in a way that is financially efficient using asset financing techniques. This not only allows them to conserve precious capital, but also gives them additional financial flexibility.”

Siemens’ research is based on projections for capital equipment spending by industrial companies between 2014 and 2018 across ten countries – China, France, Germany, India, Poland, Russia, Spain, Turkey, the United Kingdom and, the USA.