South East: Manufacturers hit hard by COVID impact

South East manufacturers are continuing to cut back on investment in response to the impact from the pandemic, according to a major survey published today by Make UK and business advisory firm BDO.

According to the Make UK/BDO Manufacturing Outlook Q3 survey, the balance on investment intentions was reported at -11% in the last quarter. While the level was not quite as bad as that for the last quarter and better than the UK average, the continued severe impact on future investment is likely to hamper the efforts of companies to take advantage of any recovery.

Make UK warned that given the uncertainty surrounding the Brexit negotiations and the very real possibility of ‘no deal’, the combination of that outcome with the continued impact of the pandemic could cause further damage to investment prospects in the latter part of the year.

The impact of COVID-19 also took a heavy toll on company order books and output in the South East with the balances for orders and output falling to -24% and -36% respectively. Output levels in particular are reflecting the continued impact of the pandemic as London and the South East has enjoyed a strong manufacturing performance in recent years.

In response to the difficult trading environment, the prospects for recruitment have also been dealt a heavy blow with the proportion of companies intending to recruit falling sharply.

Looking forward, given the impact on the sector Make UK is now forecasting that manufacturing output will fall by almost 11% this year while it has downgraded its forecast for recovery in 2021 by more than a full percentage point from 6.2% to 5.1%. GDP is forecast to fall by -8.5% this year before recovering by +10.1% in 2021.

Jim Davison, region director for Make UK in the South East, said: “Manufacturing has begun to climb away from the abyss that it stared into earlier in the year. But, make no mistake it is going to be a long haul back towards normal trading conditions, with talk of a V-shaped recovery nothing more than fanciful.

“Having emerged from three years of political uncertainty at the end of last year, increasing talk of a final ‘no deal’ exit from the EU would be a final nail in the coffin for many companies. If we are to avoid this and, the avalanche of job losses that would follow in already hard hit areas and sectors, it is essential that the first step towards a fuller recovery is provided by a comprehensive trade agreement with the EU.”

Richard Willis, head of manufacturing at BDO, said: “The fact that so many businesses in London and the South East are losing their appetite to invest is a real cause for concern. With a no deal exit from the EU – and associated logistics, customs and cost implications – looking increasingly likely, British manufacturers will need to step up a gear in order to compete internationally, and this will require significant investment in productivity and digitalisation improvements.

“No-one is in any doubt about the financial challenges facing manufacturers, but failing to invest now will have serious medium to long term implications. The Government must be alive to this risk and provide the support required to help UK manufacturers through this transition period and beyond. Other countries – Germany in particular – provide good examples of consistent long term support to their manufacturing sectors. The UK should look to adopt a similar approach.”