Brexit fears hit UK manufacturers’ spending plans

UK manufacturers have cut spending plans in response to growing political uncertainty and rising fears of the impact of global trade tensions, according to a major survey released today by EEF and Santander.

spending plans
Toyota is the latest manufacturer to sound a no-deal Brexit warning. Pictured, the firm’s Burnaston plant.

Based on a survey of 232 companies carried out in August 2018 the annual EEF/Santander Investment Monitor found that just over a third (34 per cent) of companies plan to increase their investment in plant and machinery, the lowest figure in the survey’s five-year history.

Just under a third of companies (30 per cent) are citing political uncertainty as a reason not to invest (up from 17 per cent last year), whilst order book uncertainty has risen significantly over the last year (23 per cent to 36 per cent) in response to the cocktail of domestic and international forces. In particular, almost a fifth of companies (17per cent) are holding off their investments due to a lack of clarity on Brexit.

The survey also reveals which aspects of companies’ investment plans have been most susceptible to Brexit-related uncertainty, with just over half of companies saying that investment in plant and machinery had been put on hold because of Brexit negotiations and over a third (36 per cent) shelving plans to invest in new and improved buildings. Investment in R&D programmes and IT systems have also been hit.

The survey results point to a widening gap between actual investment and what is needed to get productivity growth back on track. Hurdles to new technology adoption are especially pronounced among smaller companies who feel they have not been investing enough to keep at the forefront of technological change. This has important implications for the fourth industrial revolution given almost 40 per cent of companies with a hundred or fewer employees said they would have prioritised investment in plant and machinery, a key factor in being at the forefront of technological change.

EEF chief economist, Ms Lee Hopley warned that this will have significant impact on attempts to improve the UK’s productivity performance.

“Our latest Investment Monitor puts into sharp focus the widening gap between the investment manufacturers know they need to make to capitalise on growth opportunities and to adopt productivity enhancing technologies and the hurdles they face in getting those decisions over the line,” said Hopley.

The report follows a number of warnings from some of the UK’s biggest manufacturing employers. Most recently Toyota’s UK boss Marvin Cooke warned that the company will halt production at its Burnaston plant – potentially for a number of months – in the event of a no-deal Brexit. BMW and Jaguar Land Rover have sounded similar warnings about the potential for production disruption in recent weeks.

Commenting on today’s announcement, Peter Edgar, CEO of SME funding platform Investx, said: “The manufacturing industry delivers high-value employment, research and design and constitutes 6% of the UK’s job market. But today’s annual survey from the EEF manufacturers’ body suggests the sector is in serious jeopardy. Smaller companies appear to be particularly squeezed, with three-quarters saying they were going to freeze spending plans in the coming two years.

“Set against the backdrop of Brexit economic uncertainty, businesses can expect lower levels of capital investment, minimal access to European investment, and reduced growth. Inevitably, it’s SMEs that are being hit the hardest.”