With investments reduced and potential exports dropping, growth in the manufacturing sector has become stunted as “economic uncertainty and Brexit confusion” causes industry pessimism, according to CBI.
CBI’s recent Quarterly Industrial Trends Survey, of 326 manufacturing firms, shows that business optimism in the quarter to January has fallen, and export prospects have declined at a record rate since the financial crisis. This declining trend is mainly due to preventions against disruptions in supply chains following Brexit uncertainty and subsequent economic turbulence.
Tom Crotty, group director of INEOS and chair of CBI manufacturing council, said: “The last quarter has been a challenging one for manufacturers, who are understandably bracing themselves for the frightening prospect of a ‘no deal’ Brexit."
"Uncertainty has sadly become the norm, and this is holding back growth and investment in the manufacturing sector. It is vital that the Government finds a positive solution to the current Brexit deadlock so firms can continue to compete both at home and abroad.”
Industry pessimism is causing manufacturers to act cautiously towards investments, and this could have detrimental effects on future growth across the sector.
CBI survey suggests manufacturers expenditure towards building, plant and machinery, and training and innovation are expected to be reduced. Planned spending in areas of plant and machinery, and building are expected to fall below past averages, with plant and machinery at -18% compared to -7%, and buildings at -24% compared to -18%. Likewise, training expenses and product & process innovation in the year ahead is said to lower (-11% from -10% and -8% from -6%, respectively, in the previous quarter).
The most cited factor affecting investment decisions is demand uncertainty (58%), as well as high concerns over labour shortages (21%).
While manufacturers are leaning on the side of caution, results from the survey indicate that firms also expect to have to deal with inflation of domestic prices by 18% and of export rates by 15%.
Anna Leach, CBI head of economic intelligence, said: “The manufacturing sector is clearly feeling the pinch of Brexit uncertainty, with worsening business sentiment coinciding with an ongoing reluctance to invest in new facilities, machinery, innovation and training. Notwithstanding continued growth in output, these underwhelming figures in part reflect businesses’ continuing desire for clarity."