‘Risks outweigh opportunities for UK manufacturers’

2 mins read

UK manufacturers expect 2016 to be a year of tough decisions and more prominent risks, according to this year’s annual EEF/Aldermore Executive Survey. Faltering confidence is expected to continue into 2016 as manufacturers contend with the ongoing global economic hangover from 2015 and a landscape where opportunities are outweighed by risks.

While almost a quarter of companies (23%) see more opportunity than risk in the year ahead, they are outstripped by the 44% of manufacturers who see more risks.

Global economic volatility is a key driver, with manufacturers identifying significant movements in exchange rates (42%), economic volatility in a major market (36%) and uncertainty around the UK’s place in the EU (36%) as the top risks they face this year. Over a third of manufacturers (36%) see upward pressure on business costs as a possible risk to growth in 2016, with pressure expected to come from a range of sources.

Two fifths (40%) manufacturers expect to see global economic conditions deteriorate further in 2016, while just 23% expect conditions to improve. However, a third say an improvement in industry (33%) and UK economic conditions (32%) is on the cards, outweighing those expecting conditions to take a turn for the worse.

The number of manufacturers viewing the UK as a competitive location for manufacturing has fallen from 70% last year to 56% this year.

Nonetheless, over half of manufacturers (55%) expect to increase productivity, while more than four in 10 expect to boost UK sales (43%) and export sales (43%). To support growth, their main focus will be on increasing investment in technology and innovation (41%), selling into new export markets (39%) and collaborating with customers and suppliers to ensure supply chain flexibility (37%).

But, while proactively planning to help shield themselves from the impact of economic factors and to deliver growth, it’s also clear that manufacturers are aware that tough conditions can mean tough decisions. As a result, organisational changes (35%), workforce restructuring (34%) and ‘across the board’ cost-cutting (31%) all feature on manufacturers’ list of company priorities for the year ahead.

Terry Scuoler, chief executive of EEF, says: “The gloom that took the shine off UK manufacturing’s performance in 2015 is set to continue into 2016. But, while expecting similar challenges as those seen last year, manufacturers are still planning for growth.

“There is particularly good news about the number looking to prioritise investment in technology and innovation and those looking to explore new export markets. These are positive and proactive steps. At the same time, however, tough conditions call for tough decisions – and restructuring and cost-cutting efforts are clearly high on the agenda for some.”

However, he added: “Last week’s warning from the Chancellor about a dangerous cocktail of economic risks chimes with concerns reported by manufacturers. With worries also extending to the competitiveness of the UK business environment this is a wake-up-call and I would urge the government to continue to work proactively with industry to mitigate risks and boost opportunities for our sector.”

The full report can be viewed here.