A global slowdown, rising protectionism and the ever-present spectre of Brexit has seen businesses express a more pessimistic outlook for growth prospects in the coming year, with EEF warning that a ‘no deal’ is not an option.
The latest EEF/AIG Annual Senior Executive Survey shows that while companies still expect to see growth in domestic and export orders, as well as employment, in the coming year, they are much less confident than a year ago – especially about prospects for the UK economy.
Aside from trade related matters, the survey also shows that cyber security continues to rise up the business agenda with the number of companies citing disruption from cyberattacks as the most significant risk to their business doubling in the last year.
EEF chief executive, Stephen Phipson, commented: “Business is crying out for some certainty and clarity on moving to a transition period and will have watched the pre-Christmas pantomime in Parliament with dismay. This situation cannot continue.
According to the survey, overall companies are still positive about the prospects for the global economy but the number who take this view is down sharply from last year with half seeing more risks than opportunity compared to a quarter who see more opportunities.
However, in contrast to 2018, there is a marked polarisation between those who expect global conditions to improve significantly and those expecting it to deteriorate significantly.
Almost three-quarters of manufacturers (72%) say the UK departure from the EU, and the consequences surrounding it, is their biggest source of uncertainty.
Over four-fifths (81%) identified exchange rate volatility as a risk to their business plan with only one-fifth saying significant currency movement was not a risk in 2019.
Three-quarters of companies see upward pressure on input costs brought about by a weaker sterling as a risk (a previous EEF survey found only 6% of companies thought a weaker sterling would be of benefit).
Delays at customs was a risk for almost four fifths of companies (76%), with a third seeing delays as their most significant risk.
Furthermore, almost half of companies saw a relocation of a major customer away from the UK as a source of risk, a third of these directly related to Brexit.
Actions to mitigate the direct impact of Brexit have seen businesses evaluate suppliers inside and outside the UK (68% and 63%) respectively and stockpiling components/raw materials. More than six in ten companies are looking to stockpile (62%), with 29% already doing so and a further 33% planning to do so in 2019.
Almost two-thirds of companies (63%) see disruption from cyber attacks as a risk, closely followed by increased trade protectionism (59%).
Companies are taking a range of options to mitigate the risks they may face. The extent of the threat from cyber attacks is highlighted by the fact it is top of the list for companies taking action, with 60% of companies already increasing protection and a further 26% planning to do so.
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Update (8th January)
More than 200 MPs have signed a letter urging Prime Minister Theresa May to avoid a no-deal Brexit, saying it would have negative consequences for the manufacturing industry.
The letter says manufacturing plants and jobs would be put at immediate risk if Britain leaves the EU on 29th March on World Trade Organisation (WTO) terms and that a no-deal Brexit would cause significant blows to the industry’s competitiveness.
The authors write that the EU is UK manufacturing’s biggest export market and that ‘without continued investment and confidence in the UK manufacturing sector, thousands of jobs across the country will be put at immediate risk.’
The cross-party group of MPs call on the Prime Minister to agree a mechanism that would ensure a no deal Brexit could not take place. Otherwise they say, leaving the EU without a deal would cause ‘unnecessary economic damage’ for the UK.
The letter was organised by Conservative MP and former cabinet minister Dame Caroline Spelman and Labour MP Jack Dromey, and backed by a number of business organisations, including the CBI, EEF, and the SMMT.