‘Perfect storm’ for manufacturers as survey shows Brexit uncertainty colliding with impact of Covid-19

December 18, 2020

Just 2% of the South West’s small to medium-sized manufacturers think Brexit will have a positive impact on their recovery, while more than half admit they still cannot predict how the transition out of the EU will affect their business.

And with the UK-EU talks entering their final hours with no sign of a deal, many manufacturers in the region say the continual uncertainty has been holding them back. 

The worrying picture emerges from the latest Manufacturing Barometer – an influential regional survey conducted by SWMAS (the South West Manufacturing Advisory Service) and the Manufacturing Growth Programme (MGP) – at a time when industry is still besieged by Covid-19 and living with constant changes to the way they operate.

Meanwhile a second regional manufacturing survey – by Make UK and business advisory firm BDO – reveals output in the South West has increased significantly to a balance of plus-19%, substantially ahead of the national average.

This was mainly reflected in the positive picture for domestic orders, which were also substantially above the national average. However, the picture for export orders was flat, as is the picture for total orders overall.

And despite the gradual improvement in business conditions, recruitment intentions were still negative, according to the Make/BDO survey, while investment intentions were substantially negative, reflecting the efforts of companies to control costs and manage debt accumulated during the crisis.

The SWMAS/MGP survey, which gathered intelligence from 132 companies across the region, revealed that just over half were still trading below pre-pandemic levels, with a quarter feeling it will take between one and five years to return to normal.

Some 42% were not convinced that financial support currently in place will be enough help them survive Covid-19, with 47% saying grants towards capital investment would benefit their business most.

This suggests the region’s small manufacturers are willing to spend in order to improve productivity and achieve more sales, but indicates that further support is still needed to make this happen. 

SWMAS managing director Nick Golding, pictured right, said: “SME manufacturers have been battered by Covid-19 and now they have the additional challenge of recovering with Brexit looming large on the horizon.

“It’s like a perfect storm for management teams trying to plan whilst not knowing what the future holds. On top of this, many are also coping with lower levels of resource as a result of the Covid-19 pandemic.

“Over a third of respondents have called for support around the EU exit, and current levels of uncertainty indicates that more assistance will be required to help them adjust to the new trading conditions, whatever they eventually look like.”

He said many manufacturing firms would be affected by issues such as information transfer from Europe and new labelling requirements even if they only supplied the domestic markets.

“The message is clear, businesses will need to review the government transition support page regularly for further clarity as and when it is published,” he added.

There were some positives in the survey’s findings. Almost a quarter said sales had not been affected by Covid-19 while 15% reported an increase in trade since the pandemic began.

“This highlights the innovation of our SMEs and their ability to adapt in order to supply customers in new markets,” added Mr Golding.

The Manufacturing Barometer, which informs government industrial policy, highlighted some recovery from the impact of the coronavirus pandemic, with 32% of companies increasing sales between April and September as the marketplace picked up slightly, with 46% predicting growth over the next six months.

Encouragingly, more than a third expected to recruit more staff and 42% were committed to investing in their business – a significant increase from the 14% in April’s Barometer. 

Make UK South West director Jim Davison said manufacturing had stepped back from the abyss that it had stared into earlier in the year. 

“But, make no mistake, it is going to be a long haul back, with talk of a V-shaped recovery nothing more than fanciful,” he added.

“Having endured over four years of political uncertainty, combined with the pandemic, many in industry are feeling like an exhausted boxer in the final round of a bout, with a ‘no deal’ exit from the EU potentially landing a knockout blow.

“Should this happen, the nascent recovery is likely to go into reverse, with significant damage to manufacturing and job losses following in already hard hit areas and sectors.

“It is essential that the first step towards a fuller recovery is provided by a comprehensive tariff and, quota free, trade agreement with the EU with a sensible range of easements to allow business some time to adapt.”

BDO South West head of manufacturing Matthew Sewell, pictured above, said after a torrid year, manufacturers in the South West who rely on continental supply chains and export markets now faced a race against the clock to prepare for the end of the transition period.

“The prolonged negotiations with the EU have made this far more difficult than it should have been. Manufacturers are now desperate for greater clarity so that they can be released from the post-referendum paralysis which has made it nigh-on impossible to take long term decisions,” he said.

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