Carl D’Ammassa, group managing director of Business Finance at Aldermore, gives an overview of the year ahead for UK manufacturing.
It is no secret that the UK manufacturing sector is facing a number of challenges and the fifth annual EEF survey on confidence in the industry clearly shows that the nation’s manufacturers are conscious of the difficult market environment, and reinforces the belief that 2016 could prove to be another tricky year for the industry.
The prospect of a slowing global economy alongside minimal growth in the UK has prompted a moderate outlook for the industry, with expectations in line with predictions from a year ago.
However, individual manufacturers’ performance forecasts are lower than at the beginning of 2015, and many are anticipating a fall in both productivity and UK sales.
The outlook for export sales remains broadly in line with the 2015 forecast. This muted outlook is no doubt a symptom of the many macroeconomic factors that manufacturers see weighing on them, from exchange rate volatility to economic uncertainty in key markets ,including the UK where questions about our place in the EU will persist until the referendum has been held.
These factors mean that more than two fifths of companies surveyed are anticipating a higher number of risks than opportunities for their business over the next year.
Given our focus on lending to SMEs, we were also interested to see that more manufacturers are citing cash flow and payment terms as the biggest risk they face this year.
Cash flow can cause problems for manufacturers of all sizes, but fortunately there are measures that businesses can take to protect themselves.
Last year’s government action to remove bans on assignment contracts, which are sometimes put in place by large corporations to prevent smaller businesses from securing finance against their invoices, was a positive development in this respect.
Not all bad news for UK manufacturing
Despite the industry’s muted expectations going into 2016, it is not all bad news. Manufacturers’ priorities for 2016 are positive ones, with increased investment in innovation and technology at the top of the list, closely followed by selling into new export markets.
The digitalisation of manufacturing continues at pace, so it is reassuring to see that firms are embracing this. Likewise, with many manufacturers anticipating a drop in UK sales, it is natural that they are looking to foreign markets to generate the growth that they could struggle to find at home.
These priorities naturally require funding and at Aldermore we continue to see strong demand for finance from manufacturing businesses, and particularly SMEs operating in the sector.
This, coupled with the survey’s finding that access to external finance remains at the bottom of manufacturers’ anticipated risks, suggests that those manufacturers in a position to invest are generally able to secure the external finance that will enable them to do so.
Manufacturing plays a key role in the UK economy. The relative ease of access to external finance highlighted in the survey should help mitigate some of the industry’s anticipated risks and facilitate planned investment in technology and innovation, while reinforce the industry’s vital role in driving the UK’s ongoing economic recovery.