The leading association of independent accountancy firms, MHA has been providing an insight into the UK’s manufacturing and engineering landscape over the past seven years with its annual manufacturing and engineering survey, writes Kate Arnott, partner and head of manufacturing for MHA MacIntyre Hudson in the Thames Valley.
Drawing on national and regional insight from over 200 businesses in the sector, the report reveals the majority of businesses were cautiously optimistic in terms of growth, despite uncertainty surrounding Brexit; however risks associated with ‘no deal’ are damaging business confidence.
70% of respondents are anticipating growth over the next 12 months, down 7% from last year. The devaluation of sterling has meant economic growth and manufacturing output has performed better than expected following the 2016 vote to leave the EU, however only 10% of companies surveyed ranked business confidence as high when considering the next 12 months.
Employment and skills
49% of businesses expect to see an increase in staff in the coming year, down 8% from last year. However, 81% have difficulties finding staff, with the biggest single problem with recruitment being the shortage of applicants with the required skills. 19% of respondents felt this was their biggest barrier to growth, and while government initiatives outlined in the Industrial Strategy are welcomed, they do not deliver the required talent pool that manufacturers need today.
Encouragingly, 63% of businesses are planning to take on apprentices, yet a further 10% expressed that they would like to take on apprentices, but don’t understand the system or the funding and support available.
Only 8% of respondents believe that their cost of production will remain at present levels, with 72% anticipating an increase in the cost of raw materials. Businesses in the sector have traditionally been reluctant to pass on cost increases to customers, relying on improving productivity and efficiencies, however this year 33% have indicated they have no choice but to raise prices.
There has been a concerted push to help UK businesses break into new international markets and 58% of respondents to our survey export, with 29% finding exporting assistance from the Government useful.
The most popular export destination remains the Eurozone, with 100% of exporting companies shipping goods there, up 4% from last year. The US was the second most popular destination, with 76% exporting there, however that figure is down 15% on last year. Asia (excluding China) accounted for 55% and North America (excluding the US and Canada) saw just 18% of respondents exporting goods there; which either means opportunities are being lost or the barriers to exporting there are perceived to be too high.
Of our respondents, 89% are investing in R&D, with 65% indicating that they would be applying for R&D tax credits in the next 12 months. Much R&D focusses on automation and digitalisation, which present both challenges and opportunities for the sector, so it’s encouraging to see a high percentage of businesses investing in R&D. While automation is inevitably a risk to future manufacturing jobs, lower production costs could see a significant ‘re-shoring’ of industries to bring down transport costs and tariffs. This could lead to better coordination of manufacturing processes with R&D activities; creating more highly-skilled roles.
Sustainability was a high or medium priority for 79% of respondents. Energy consumption remains a massive cost for manufacturers and the wholesale price of natural gas has begun to rise again this year. Efforts to diversify energy sources or develop alternative production processes provide an opportunity for manufacturers to lead the way in sustainability and low carbon technologies.
Make a wish
We asked participants what they would like from government to help their business. 60% wanted government to step up efforts to combat the skills gap and expand training in schools and colleges. 46% said that they were hoping for a ‘soft-Brexit’, underlining that manufacturers and engineers are looking to government to provide a managed exit and not risk crashing out with ‘no deal’. 30% cited concerns over Brexit and our future trading relationship with the EU as their biggest barrier to growth.
Brexit and the associated uncertainties feature heavily in our survey results, as did the current skills gap and difficulties recruiting. Manufacturing and engineering are a cornerstone to sustainability of the UK economy and it is crucial that government policy and decisions made around Brexit support these businesses operating in the UK to realise their potential.