Investment by Britain’s manufacturers has seen a reality check in response to the continued political uncertainty according to a major new study published by EEF and Santander.
While demand conditions should be spurring on investment, just one third of manufacturing companies say that Brexit has had no impact on their plans.
A similar proportion are only investing to satisfy current plans and waiting for clarity on any deal before investing further.
At the other end of the spectrum, 13% of companies are holding off investment altogether until there is further clarity on a Brexit deal.
Taken together this leaves the outlook for investment by manufacturers finely balanced with only a narrow majority expecting to be investing more on new equipment in the next two years.
While the reticence emanating from other parts of the global economy has diminished, the survey reflects increasing Brexit-related uncertainty. This indicates that while manufacturers may be investing to satisfy current plans or, expand capacity, they are not investing in improving their production capacity.
The situation has been revealed by the latest EEF/Santander Annual Investment Monitor. The survey’s spotlight on investment in automation reveals that industry is making only slow progress on automating manufacturing processes, with industry being held back not just by caution but also by challenges from the cost of technology, uncertainty about returns and the capability to successfully implement change.
In response, EEF considers that boosting investment and productivity should be at the forefront in the forthcoming Budget statement.
Concerns over adoption of Automation and impact on productivity
- In the past two years, manufacturers invested 6.5% of turnover in new plant and machinery, down from 7.5% last year.
- The slowdown was predicted in last year’s report, given uncertainty surrounding Brexit
- Looking ahead, a majority of manufacturers (51.1%) intend to spend more on plant and machinery over the coming two years. It remains finely balanced however.
- For those who intend to spend more, there is a need to replace equipment which is becoming obsolete, as well as take advantage of new opportunities on the back of an improved global outlook.
- For the other half, Brexit uncertainty is holding back investment plans, while there is also little focus on investing to improve process efficiency.
- This is backed up by international data, which shows that the UK lags behind its European counterparts in investment in machinery and robots, with a number of barriers at play including cost, uncertainty about returns and skills.
Chief economist at EEF, Lee Hopley explained: “Manufacturers have navigated a panoply of demand-related challenges in recent years, which have taken a toll on the sector’s appetite and ability to invest.
“With global demand on the up conditions should be ripe for industry to make new investments in capacity and productivity enhancing technology. But Brexit means the future outlook for investment is not clear cut.
“Political uncertainty is adding to the hurdles of cost and lack of skills in holding back spending on automation technology.
“The forthcoming Budget can at least start to address the latter of these challenges, starting with an ambitious industrial strategy that tackles barriers to investment head on and ensures UK manufacturers are equipped to compete for the future.”
Paul Brooks, head of manufacturing, Santander, commented: “While the Monitor shows that investment by UK manufacturers is down on last year, it is encouraging to see that just over half of manufacturers intend to spend more over the coming two years.
“The Monitor shows that uncertainty surrounding the Brexit negotiations has impacted some firms’ investment decisions, despite this, 51.5% of businesses responded that they are either increasing investment due to Brexit opportunities or that Brexit has had no impact on their investment plans.
“The Monitor clearly highlights the need for businesses to invest more in automation, with the report showing that the UK investing significantly less in machinery than our European counterparts.
“At Santander, we strongly encourage those firms that are holding back to focus their investment decisions on increased automation which can lead to productivity gains. By investing more in this area, UK Manufacturers can improve their competitiveness and Santander has a range of support to help them do this.”
Santander is the headline sponsor of The Manufacturer MX Awards 2017 – the year’s largest celebration of UK manufacturing.
The ceremony and gala dinner on 16 November in Liverpool is the culmination of a year-long entry and judging process, where more than 1,000 industry leaders will join to network and reflect on the success of British manufacturing. (See the shortlist here)
The awards ceremony is co-located with The Manufacturer Live series of events across 15-16 November. For more details on the ceremony and to book your tickets, please visit: www.themanufacturermxawards.com