Brexit vote sees broad fall in UK industry confidence

Manufacturers’ business confidence has taken an across the board beating following last month’s vote for Brexit, according to a new report out today from EEF and accountancy and business advisory firm, BDO LLP.

The report reveals that every region in England and Wales has suffered a decline in optimism, with the biggest falls seen by manufacturers in the South East & London and Wales, and the smallest by firms in the North East.

The annual reportRegional Manufacturing Outlookdraws upon survey data and the latest ONS figures to provide a longer-term picture of the health of UK manufacturing.

As well as capturing confidence levels, the report also shows the positive contribution made by manufacturing around the UK in terms of employment, export success, output and productivity.

The full report can be seen here.

It shows that UK manufacturers’ average confidence score just before the referendum (2016 Q2) was 6.37 out of a possible 10 points, but has slumped to 5.24 following the vote.

Despite suffering the largest fall, the South East & London still ranks top in the UK for business confidence, scoring 5.7 out of a possible 10 points, while Yorkshire & Humber comes in second place with 5.4.

At the opposite end of the table is the North West and the East Midlands, bringing up the rear with a score of 5 out of 10.

In the North West, confidence may be suffering in part because a quarter of companies (25%) are unable to yet identify any business opportunities from Brexit – higher than any other region.

More companies here too are concerned about weaker demand prospects (59%), and the attitude of their parent company following the referendum (28%) than elsewhere in the UK.

In the East Midlands, 19% of manufacturers said they would immediately review UK recruitment; UK investment (16%); overseas investment (11%), and the country location of their operations (10%) – higher than in most other regions.

Local manufacturers are also more concerned about exchange rate volatility (84%) and increased costs (66%) than those in other regions.

In contrast, manufacturers in Yorkshire and Humber see a handful of opportunities following the Brexit vote.

They top the table for optimism about increased demand (25%), long-term certainty about the UK/EU relationship (21%), and lower regulatory burden (25%).

And, despite seeing the steepest decline, manufacturers in the South East & London are on the whole more sanguine about the outcome of the vote than the majority of their peers, with 51% seeing the depreciation of Sterling as of benefit.

Expert analysis

Lee Hopley, chief economist, EEF.
Lee Hopley, chief economist, EEF.

According to the EEF’s chief economist, Lee Hopley, the Brexit vote has “put the manufacturing sector’s recovery in jeopardy.”

Hopley continued: “The growth path is now uncertain in all regions and, while firms in the South East & London and Wales look better placed to ride the storm, companies in the Eastern counties, North East and the South West, appear more downbeat about their ability to cope.

“The referendum outcome has provided a jolt and it’s clear that there are fresh challenges ahead. Exchange rate volatility, political uncertainty and the danger of increased costs are already causing concern across the regions and business confidence is in short supply. But our sector is nothing if not dynamic, determined and resilient. UK manufacturing remains a force to be reckoned with.

“With a solid business environment, supportive policies and the right outcome from Brexit negotiations allowing for trade and ongoing access to skilled workers, manufacturers should be able to overcome the risks, reap future growth rewards and get their business confidence back on track.”

Tom Lawton, head of manufacturing, BDO LLP
Tom Lawton, head of manufacturing, BDO LLP.

Partner and Head, BDO Manufacturing, Tom Lawton said that though optimism among manufacturers had dropped following the Brexit vote last month, “the impact on confidence was expected” and shouldn’t detract from UK manufacturing’s strong performance over the past 12 months.

He continued: “I firmly believe that UK manufacturers have the skills and adaptability to deal with the challenges ahead and am confident they will make the most of the opportunities that arise.

“The lack of a clear strategy for the manufacturing sector over recent years has been of huge concern and it is encouraging to see Theresa May’s promise of a proper industrial strategy. We would like to see the Government match manufacturers’ long-term outlook by developing a 15-20 year industrial policy that avoids the disruptions of the political cycle.”