What does 2018 hold in store for UK manufacturing?

Several high-profile OEMs revealed major investments for the UK and its supply chain in 2017. Will the same hold true for 2018? Mike Rigby - head of Manufacturing, Transport and Logistics at Barclays - reports.

UK Manufacturing Robotics Automation Factory Automotive Production Line Robots - Stock Image
There are a handful of factors which a healthy manufacturing sector needs to prosper.

While the wider economy has seen growth taper off in the face of rising cost pressures and a resulting dip in consumer spending, UK manufacturing businesses have had a positive end to 2017.

The closely watched Purchasing Managers’ Index (PMI) hit its highest level in more than four years in November, driven by the benefits from a weak sterling and an improving global economy filling order books.

November’s PMI result helps illustrate the momentum currently surrounding UK manufacturing – momentum which is rapidly gathering pace thanks to the recent publication of the industry-led Made Smarter Review, which in turn fed into the government’s broader Industrial Strategy.

A successful year

There are several factors which a healthy manufacturing sector needs to prosper: a performing, reliable economy; a supportive government; OEMs investing in the UK and/or in their UK supplier base; and a stable – or at the very least, predictable – foreign exchange rate to help manage cost control.

All four would indicate that 2017 has been a success, despite ongoing challenges such as recruitment and skills shortages, uncertainty over what the UK’s final ‘Brexit’ deal will look like, and sluggish national productivity.

Over the past 12 months, the economy has, for the most part, been stable. The government, with its Industrial Strategy and recent Budget, has shown that it is not only engaging with industry, but is committed to delivering the action (and infrastructure) it requires to better compete with its global peers.

Further positivity came in the form of several high-profile OEMs announcing significant investments in the UK and its resident supply chain this year, including:

  • Toyota Motor Europe investing a further £240m into its Derbyshire site to promote UK supply chain efficiencies,
  • Boeing breaking ground on its first European production facility in Sheffield, which will employ 19 apprentices within its 50-strong workforce,
  • Liberty House Group safeguarding 1,700 steel workers and creating 300 new production jobs with its acquisition of Tata Specialist Steels’ business in South Yorkshire,
  • Aston Martin taking ownership of its second UK production plant in South Wales as part of a £200m investment in new products and facilities, a move expected to create 750 direct jobs and a further 3,000 across the supply chain,
  • Global industrial robot manufacturer, FANUC, relocating to new headquarters in Coventry’s Ansty Park, where its 107,000 sqft building comprises a 56,000 sqft design, manufacturing and training facility, 43,000 sqft of offices and an 8,000 sqft showroom.

Looking ahead

As 2017 draws to a close, it would appear – at least on the surface – that the next 12 months could present a more challenging business environment.

The global economy is likely to continue growing at a solid pace, with every major economy similarly expanding and, importantly, investing in infrastructure, technology and connectivity.

Early indications would suggest that the UK economy is likely to perform less strongly than many of its international peers thanks to a combination of rising import costs and the growing effect of domestic costs from overheads such as energy and labour – all of which are contributing to inflationary pressures.

Apprenticeship Levy Semta EAL Stock
The Apprenticeship Levy obliges businesses with wage bills in excess of £3m to pay 0.5% of that bill towards funding the creation of 3 million new apprenticeships.

The long-awaited publication of the government’s Industrial Strategy was welcomed by all, but how it’s actually implemented is likely to be of greater importance.

Take the Apprenticeship Levy for example, which came into force in April 2017 and obliges businesses with wage bills in excess of £3m to pay 0.5% of that bill towards funding the creation of 3 million new apprenticeships.

On the surface, the aim of the levy is worthwhile and could still play a strong part in reversing the UK’s chronic under-investment in skills and training compared to its European counterparts.

Yet, recent figures from the Department of Education demonstrate that the uptake of new apprenticeships has plummeted by 59% since April, a dramatic fall caused as a result of an unwieldy, overly bureaucratic process, according to industry experts. It’s vital that a similar fate doesn’t await the strategy’s ‘five foundations of productivity’.

Regarding foreign exchange rates, some suggest the pound could actually trade substantially higher next year in the lead up to the UK leaving the European Union in March 2019. That should help to alleviate some of the cost pressures manufacturing businesses have been facing since the vote to leave in June 2016.

Such a positive result, however, is likely to depend on how negotiations progress over the coming months and what the final ‘Brexit’ deal looks like. That will also play a strong part in whether OEM investments in the UK increase or decrease next year, particularly from foreign-owned companies.

To get 2018 off to a strong start, the sector needs manufacturers following through, more and quicker, on investment intentions, specifically in areas such as smart tech, which is vital if UK manufacturing is to boost productivity and remain competitive at an international level.

Further thought-leadership courtesy of Mike Rigby:

UK manufacturers must seize the opportunities of 4IR – 87% of UK manufacturing businesses express confidence for the future; but, why isn’t that confidence translating into greater capital investment?

Are UK manufacturers taking advantage of the opportunities? – is there still a lack of appetite for capital investments from UK manufacturers?

What role is the UK playing in Connected & Autonomous Vehicles? – lifting the lid on how the UK is driving the future of mobility.

Holidays are over, so what now for UK manufacturing? – a timely discussion on why the government’s long-awaited industrial strategy is of such vital importance.

Will manufacturing mirror what’s happening in logistics? – Confidence among logistics operators is higher than last year, with a sense of opportunity surrounding the growing impact of digital technology and data.