Political uncertainly sees manufacturing investment decline

Posted on 2 Oct 2018 by Jonny Williamson

Britain’s manufacturers have sharply applied the brakes to their investment plans in response to growing political uncertainty at home and rising fears of the impact of global trade tensions.

manufacturing investment Finance Working Capital Cash Flow - Business man squeezing one British Pound out of a money pipeline - image courtesy of Depositphotos.
Three-quarters of small companies are reportedly refraining from increasing their investment in the coming two years – image courtesy of Depositphotos.

On one hand, the annual EEF/Santander Investment Monitor shows that in the past two years, the proportion of turnover investment by manufacturers* increased on the back of a robust growth picture in the world economy.

Looking forward, however, the picture is somewhat bleaker. Just over a third (34%) of companies surveyed are planning to increase their investment in plant and machinery – the lowest figure in the survey’s five-year history.

This sentiment is especially pronounced for small companies where three-quarters of companies are refraining from increasing their investment in the coming two years.

As a reason for not investing, just under a third of companies (30%) are citing political uncertainty as a reason (up from 17% last year) while order book uncertainty has risen from 23% to 36% over the last year in response to the cocktail of domestic and international forces.

In particular, almost a fifth of companies (17%) are holding off their investments due to a lack of clarity on Brexit.

According to EEF, the brakes on investment will have significant impact on attempts to improve the UK’s productivity performance because the opportunity costs of this lost investment are significant.

This will likely widen the UK’s capital gap even further with our competitors who are not spending their time dealing with the political and economic complexities of leaving the EU.

Santander is the headline sponsor of The Manufacturer MX Awards 2018 – the year’s largest celebration of UK manufacturing:

The Manufacturer MX Awards TMMX 2018 - Shortlist Announced Banner

The survey reveals which aspects of companies’ investment plans have been most susceptible to Brexit-related uncertainty: just over half of companies (51%) said investment in plant and machinery had been put on hold because of Brexit negotiations and over a third (36%) have shelved plans to invest in new and improved buildings.

Other areas of investment are not immune with a significant proportion of R&D programmes and IT systems reportedly on hold.

These plans will be to the detriment of efforts to get the UK’s flatlining productivity performance back on its pre-crisis trend. In addition to manufacturers recognising that, on balance, investment has barely been sufficient to avoid more recruitment to meet capacity requirements, the survey also shows that investment challenges go further than political uncertainty.

For example, hurdles to new technology adoption are especially pronounced among smaller companies who feel they have not been investing enough to keep at the forefront of technological change.

This has important implications for the Fourth Industrial Revolution given almost 40% of companies with a hundred or fewer employees said they would have prioritised investment in plant and machinery – a key factor in being at the forefront of technological change.

EEF chief economist, Lee Hopley said: “Our latest Investment Monitor puts into sharp focus the widening gap between the investment manufacturers know they need to make to capitalise on growth opportunities and to adopt productivity enhancing technologies, and the hurdles they face in getting those decisions over the line.

“The upcoming Budget needs to take some bold steps to support companies in addressing this shortfall until the clouds of uncertainty start to lift.”

*The survey covered 232 companies form 1-23 August