Business confidence among UK manufacturers has declined as management teams identify weak UK and global demand as the greatest threat to their fortunes in 2016, according to the latest Business in Britain report from Lloyds Bank.
The Business in Britain report – now in its 24th year – gathers the views of 1,500 UK companies, predominantly small to medium-sized businesses, and tracks the overall “balance” of opinion on a range of important performance and confidence measures, weighing up the percentage of firms that are positive in outlook against those that are negative.
Since the last report in July 2015, business confidence – an average of expected sales, orders and profits over the next six months – in manufacturing has declined to 37%, down from 51%.
While the latest confidence reading is down from the survey’s high of 58% in July 2014, it remains above the long-term national average of 24%.
Weaker UK and overseas demand greatest threat to business
A quarter of manufacturers (25%) identified weaker UK demand as the main threat to their business over the next six months – a slight decline from 26% in July.
This was closely followed by a rise in the proportion of exporters that cited weaker overseas demand as the biggest threat to their business – a rise from 24 to 25%.
The net balance of exporters expecting an increase in foreign trade fell by 15 points to 35%, reflected by relatively large decreases in firms’ expectations to export to the US and Canada, Europe and Asia Pacific.
Exporters stated that they were more concerned about Sterling’s appreciation against the Euro than the US dollar. More than a third of manufacturers (39%) said that the value of the pound against the Euro was having a negative impact on their exports, while under a quarter (24%) said the same for the value of the pound against the dollar.
Spare capacity narrows
The share of manufacturers indicating that they are operating at full capacity – producing all that they can with existing resources – rose to 43%, up from 41% in July.
This suggests that spare capacity in the economy continues to narrow and could cause more businesses to look for investment opportunities, such as improving productivity by automating processes.
Dave Atkinson, head of manufacturing, SME, Lloyds Bank Commercial Banking, commented: “Confidence among manufacturers has taken a knock amidst fragile demand at home and abroad.
“Sterling’s strength against the Euro is exacerbating the challenges faced by the sector as exports to the continent become less competitive. However, despite the relatively volatile trading conditions confidence levels remain above the long-term national average.
“Looking ahead, manufacturers should be prepared for interest rate rises and currency fluctuations, with the recent decision by the US Federal Reserve a reminder that a low interest-rate environment is not here to stay. Lloyds Bank is playing its part in helping Britain prosper by supporting manufacturers to start up, scale up, trade overseas and manage their risks.”