Against recent UK uncertainty, the manufacturing trade body EEF reported a positive output order balance for the sector during Q4 of 2018. The reported figure of +22% is a slight decrease from Q3. However, it signals the ninth consecutive quarter of positive balances dating back to the end of 2016. It also represents a third successive year of manufacturing output expansion. However, much of the recent growth is a result of fearful preparation, as opposed to positive development.
The EEF report details that the recent positive figures for the manufacturing industry are a result of an increase in “precautionary stockpiling”. Many recent reports call into question the ability of major UK ports to function in the event of a no-deal Brexit, something that has grown in probability following the political rejection of the deal agreed between the UK and EU. The manufacturing sector is just one example of an economy that is coming under increased stress as a result of the uncertainty surrounding the UK’s position post-March 2019.
An Export Problem
Following the initial result of the Brexit referendum, the UK manufacturing sector saw a significant increase in exports, which has provided the backbone for recent expansion. Much of this export growth was thanks to the devaluation of the pound sterling, which made UK goods cheaper on the global market. However, following a peak period in the second half of 2017 export orders have been in steady decline. Despite the positive output order balance in the final quarter of 2018, EEF reports that exports have plunged to just above domestic orders, the largest drop since 2014.
The recent decline, like the rise before, has been linked to a recovery of sterling’s valuation. However, this is potentially a sign that Brexit is causing businesses to look elsewhere, concerned about potential changes to processes next year. The EU is still the primary export market for UK manufacturers, with 59% of respondents to the EEF reporting positive demand conditions from the market, much larger than North America and Asia. Whilst they anticipate export figures to climb again over the next three months into Q1 2019, the group add that the balance will heavily depend on Brexit.
At the end of November, British MPs from the Public Accounts Committee said that there was a real risk of disruption at the UK’s major ports in the event of a no-deal Brexit. Whilst some argue that this was a politicised report, it is not the first time that UK ports have been called into question – recent congestion issues at Southampton and Felixstowe ports are an example. Concerns about the UK’s capacity in major import locations whilst checks on goods take place – a likely situation even in the event of a deal – has led to widespread concern about an immediate shortage of stocks following Britain’s EU withdrawal.
This worry has spread across industries, from the four major UK supermarkets calling for their suppliers to increase stock prior to Brexit to British fashion outlet Joules producing their spring and summer 2019 ranges early in case of future shortages on materials. Manufacturers are doing the same, stockpiling not just raw materials but also completed products in case of shortages next year. This, as the EEF explain, is causing relatively positive figures in the current manufacturing market, regarding production. Whilst the picture looks positive, it is predominantly an attempt to protect the industry from the potential worst-case scenario of Brexit.
A significant problem for the UK manufacturing sector is that the worst-case scenario – for many, a no-deal Brexit – is becoming more likely. The recent political lambasting of the agreed deal in the UK, combined with the unwavering stance of EU on said deal, means that time to reach an agreement is becoming finite. This will only increase the need for more businesses to prepare for the potentially seismic changes following March 2019. This, in turn, presents a unique opportunity for firms to perform a thorough evaluation of their procurement strategies.
It is vital, now more than ever, that companies re-evaluate their supply chains prior to Brexit at the beginning of next year. We at Expense Reduction Analysts are experts at manufacturing procurement, helping hundreds of clients make savings throughout their supply chains. Our specialists work in a range of specific cost categories, helping manufacturers save in areas such as distribution, packaging and utilities. Therefore, if you are looking to streamline your procurement strategies for 2019, contact us today and see what savings we could make for your business.