UK manufacturers preparing to face uncertainty

The latest edition of the Santander Trade Barometer finds confidence falling among businesses in Britain’s Manufacturing sector. But expansion into global markets offers a possible route to growth.

manufacturing

There are clear signs that businesses in the UK’s Manufacturing sector are bearing the brunt of the ongoing uncertainty around Brexit negotiations and Britain’s future trading relationships with economies around the world.

According to the recently published Santander Trade Barometer 2018 Annual Report, only 58% of manufacturers expect their businesses to grow over the next three years – a proportion that is significantly lower than the 68% recorded across the business population as a whole.

Trade Barometer

International risks

The international exposure of a large number of manufacturers is continuing to present a particular challenge: half the businesses in the sector (50%) report that currency fluctuations are a major ongoing risk, while 44% say the same of Brexit-related uncertainty. The latter has the potential to affect issues ranging from the value of sterling and the efficiency of cross-border supply chains to the costs – in both financial and regulatory terms – of doing business in global markets.

So what are UK manufacturers doing to address these concerns and prepare for potential turbulence? The Trade Barometer shows that a reassuringly high proportion of businesses (82%) plan to invest in product development over the coming 12 months, while 74% say they will purchase new equipment and 63% intend to expand their international operations.

Elsewhere, considerable resources are being devoted to planning for a range of Brexit outcomes: 57% of companies have now made some preparations, up from 48% in the previous quarter.

Focus on supply-chain issues

Of these businesses, most are looking at possible scenarios (62%) while 51% are investing in solutions to manage probable outcomes such as adding extra warehousing space to mitigate potential supply-chain problems that could arise if new checks are introduced on the UK-EU border.

From our customers in the sector as well as from partner organisations such as EEF, we are hearing that many businesses are taking steps to build up their cash reserves, having reined in their investment activity over recent months. While this strategy may help companies deal with any post-Brexit difficulties, there is also the possibility that – in the event that the UK leaves the EU with relatively little disruption to international trade – we will see these reserves used to spark a new wave of investment among manufacturing businesses in the short- to medium-term.

The Barometer also suggests that manufacturers are starting to broaden their horizons when it comes to their overseas activities. While the vast majority of exporters in the sector (97%) currently do businesses with counterparts in the eurozone, just over a third (36%) see the greatest future growth potential in this area. The same proportions now expect the Asia-Pacific region and North America to be fertile sources of new business in the years ahead.

Clearly, whatever the outcome of Brexit negotiations, Europe will remain a hugely significant market for British businesses. But these are encouraging signs that companies increasingly understand the importance of also looking further afield for the opportunities that can deliver long-term growth.

Read about how we help customers in the Manufacturing industry.

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