UK manufacturing: confidence & challenges

In January, EEF published its sixth Annual Executive Survey, looking at manufacturing expectations for 2017. Terry Scuoler discusses the findings and urges government to boost confidence with real strategic planning.

Terry Scuoler, CEO, EEF
Terry Scuoler, CEO, EEF.

The 2016 Survey showed that risks had become more prominent for manufacturers, but the sector continues to press ahead with investment and innovation. Despite unpredictable economic conditions, UK manufacturing remains focused on delivering long-term growth strategies, which are expected to deliver continuous growth and increased productivity.

Although manufacturers are confident about their own performance, risk is firmly on their radar in what may very well be a year with fresh challenges. The triggering of Article 50 is expected soon, and it is difficult to assess what impact this momentous decision will have on the psychology of investors and consumers when the full reality of leaving the EU hits home.

We expect significant price increases for consumers whose spending power will be reduced, while overseas the Trump presidency and elections in France and Germany may well produce fresh upheaval. In these uncertain times manufacturers must remain focused on delivering ambitious growth plans for 2017.

The Survey found an emphasis on innovation as a means to boost productivity and enhance competitiveness. UK manufacturing plays a key role in the nation’s innovation landscape and this effort is expected to strengthen, with firms engaging in process innovation, introducing new products and embracing fast-moving changes in technologies as part of the Fourth Industrial Revolution.

EEF Executive Survey 2017
EEF’s annual survey of UK manufacturing executives examines the year ahead for the sector.

While the slowdown in world trade remains a threat, UK manufacturing is far from apprehensive, with four in ten Survey respondents saying they will be diversifying into new export markets, but three-fifths realistically citing it as the most challenging action to deliver in 2017.

While manufacturers are realistic about UK and global economic conditions, sales expectations remain in the black. Firms expect sales in the domestic market to improve from 2016’s modest increase, while exports to EU and non-EU markets are expected to pick up, reflecting brightening demand overseas and support from weak sterling.

Consistent with the boost in demand, employment and investment are set to hold up in line with capacity requirements. On the downside, profit margins have weakened, reflecting intensified pressure on input costs from sterling’s depreciation and recovering oil prices.

Manufacturers are realistic about the challenges ahead, with almost half of manufacturers seeing more risks than opportunities, a higher proportion than in recent years.mTo counter this uncertainty, government can give UK manufacturing confidence by developing a new, modern, Industrial Strategy. Although we have had some elements of a strategy in recent years, crucially, they have not been joined up across government departments.

From now on, especially post-Brexit, when drawing up departmental plans each Secretary of State must justify how their plan is going to promote growth and if not, they must be challenged.

There have been some positive moves recently, including commitments to Hinkley Point, Heathrow Airport Expansion and HS2. Plus, we have seen changes to procurement guidance to ensure UK steel companies are better placed to supply into these projects.

Government now has the ideal opportunity through a new Industrial Strategy to build on these announcements and harness the power that industry can bring to a new economy.