Published Tuesday 28th May 2019
According to research conducted by the Confederation of British Industry (CBI), Britain’s manufacturing industry has seen its biggest decrease in orders in over two years. The survey, looking at performance in the three months up to May and involving 279 businesses, reported a total order book balance of -10%. This figure is down from -5% in April and is the worst score since October 2016.
Export order balance was recorded at -16%, down from -5% the previous month and the lowest score for that number since July 2016, the first month following the EU referendum. With further Brexit confusion on the horizon, there are genuine concerns across manufacturing industries about what effect this period could have on businesses.
Continuing Decline for UK Manufacturing Growth
Manufacturing in the UK is an incredibly diverse sector, and the CBI reports that there are areas that experienced relative growth over the recent period. 23% of respondents to the CBI survey said their total order books were above normal, although the number reduces to 13% if only considering exports. The report states that much of this growth has been seen in the mechanical engineering, chemical and food sectors.
However, 30% of respondents stated that their export order books were below normal expectations. In this group are many of the big players in the UK manufacturing sector, such as vehicles and clothing. The struggles of the automotive industry have been well-documented, with British car production falling to a five-year low in 2018. Clothing, meanwhile, is central to a retail sector that is experiencing an upheaval of its own, with the growth of fast, cheap fashion putting pressure on producers.
The Brexit Effect in UK Manufacturing
The CBI announced their report during the publicised talks between the UK Government and British Steel, which eventually led to the company entering liquidation. Whilst there are many factors in this particular case, the key reasons pointed to by the company echo concerns across manufacturing and other major industries in Britain.
British Steel’s owners put a large portion of the blame upon the government’s handling of Brexit. This belief is echoed by the CBI’s statement, with Tom Crotty, Group Director of INEOS and Chair of the CBI Manufacturing Council, saying “this relentless Brexit uncertainty must be lifted as a matter of urgency.”
Brexit’s impact on businesses is nothing particularly new, and many of the problems being faced have been present for the last year. One of the most significant issues faced, by British Steel and other struggling manufacturers, is the cost of exports. On the day of the EU Referendum, 23rd June 2016, the pound traded at €1.3, a figure that has not been reached since the result. On Thursday 23rd May 2019, the day after British Steel’s collapse, the pound could purchase €1.13. This downward decline in the value of sterling has made purchasing raw materials from abroad considerably more expensive for British producers.
An issue that has been made worse over the last few months, however, is the future uncertainty. One reason why the manufacturing sector had been posting relatively stable figures was due to stockpiling ahead of Brexit. However, with seemingly no end in sight and stockpiling reaching its limit, cracks are beginning to appear at an alarming rate.
In the case of British Steel and likely mirrored across the industry, it is believed that orders have slowed due to foreign companies being less willing to do business. There is no confidence regarding when Brexit will happen, what it will look like or if it will happen at all. This uncertainty is leading many major EU businesses, and those further afield, to look at different producers with whom they can confidently enter long-term partnerships. The CBI mirrors this belief in their export order findings.
Strengthening Businesses Amid Brexit Uncertainty
Unfortunately, there appears only to be more uncertainty on the horizon for British businesses. It is expected that a Prime Ministerial change is fast approaching, which could throw the already perplexing Brexit process into the air once more. Therefore, businesses must continue to ensure they are in a strong position to perform over the year against adverse external factors. One of the best ways to ensure your business’ positive future is with the support of a cost reduction expert like Expense Reduction Analysts.
Here at ERA, we have been helping major businesses across the UK reduce their expenses amid Brexit uncertainty. We have specialists in a range of industries, including manufacturing procurement, who can help your company excel in challenging market conditions. Proactive businesses are taking the opportunity to strengthen their business procurement strategies today. So, if you are interested in what savings we could create in your business, speak to our specialists today.