South: ‘Clouds on horizon’ for manufacturers but performance remains healthy

The performance of London and South East manufacturers has remained healthy in the final months of the year despite a cocktail of factors related to Brexit uncertainty, weaker global growth and the impact of protectionist policies, according to a major survey published by EEF, the manufacturers’ organisation, and accountancy and business advisory firm BDO LLP.

According to the Q4 EEF/BDO Manufacturing Outlook survey, output across the region fell slightly to a balance of +36%, though this is from a peak in the last quarter and remains very healthy by historical average.

Domestic orders also fell slightly to a balance of +24%, yet it is still above the average for other UK regions. By contrast export orders, which have been a big driver for manufacturing in recent years, bucked the national trend by rising to a balance of +34%. This compares to a national figure for export orders of just +7%.

This picture of uncertainty moving forward, however, is reflected in weaker recruitment plans with the balance falling to +16%, while investment intentions fell sharply to a balance of +7%, in line with the weak picture for investment across the UK.

While EEF has revised upward its growth forecast for manufacturing for 2018 from 0.9% to 1.1% as a result of the weaker outlook and uncertainty it has downgraded its forecast for 2019 to just 0.3% from 0.5%. GDP forecasts remain unchanged for 2018 and 2019, both at 1.3%.

Commenting, Jim Davison, region director for EEF in London and the South East, said: “The moderation in manufacturing performance over the course of this year was not unexpected but in the final quarter there are more clouds on the horizon than there have been for some time.

“This should come as no surprise given the significant political uncertainty at home which is why it is essential that there is an agreement for the UK’s withdrawal from the EU as soon as possible. If everything that can go right does then business and consumer confidence should hopefully gather some steam next year with improved prospects for growth. That’s the backdrop we’re working to, let’s hope it’s the right one”

Arbinder Chatwal, partner and head of manufacturing at BDO in Southampton, added: “Manufacturers in London and the South East have remained reasonably confident over the course of the year and are ending the year on a relatively strong footing.

“UK-wide, there has been a strong decline in export orders which London and South East firms seem to have avoided so far this quarter, however this national downward trend is likely to be of concern for many.

“Overseas demand has helped sustain manufacturing growth over the last few years and the EU remains the most important trading block for UK manufacturers. It is crucial that Britain is seen to be open for business with the EU and other key global markets. The result of the ‘meaningful vote’ next week will dictate the government’s next steps and hopefully provide some much needed certainty as we enter the new year.”