Brexit related sterling fall fails to deliver UK manufacturing boost

The output of the UK manufacturing sector is continuing to slow down, according to the latest Business Trends Report by accountants and business advisers BDO LLP.

Despite a slowdown some manufacturers remain optimistic

The latest BDO Manufacturing Output Index, which indicates how manufacturing businesses expect their order books to develop over the next three months, details a steep fall in confidence, with the index dropping by 5.6 points from July to August and a further 2.7 points in the following month.

According to the report the drop in manufacturing confidence is at the sharp end of a broader slowdown for the UK economy.  BDO’s Output Index, which looks at all areas of business, declined to 99.9 from 100.3 in August, marking the first time that the index has been below its long-term growth trend of 100 since June of last year.

The report suggest that UK manufacturers still feel confident despite the decline in output growth. BDO’s Manufacturing Optimism Index – which indicates how optimistic firms within the sector are about their future order books – remains high at 108.7, only dropping 0.2 from August.

According to BDO, the difference between output and optimism suggests that businesses expect growth in their order books to increase towards the end of the year. This is despite BDO’s Inflation Index, which is now at its highest level since December 2012 standing at 101.4, indicates that manufacturers’ input prices will continue to increase.

Commenting on the findings, Tom Lawton, Partner and Head of Manufacturing, BDO LLP, said the boost from the Brexit-related fall in sterling that some had predicted has failed to materialise. “It seems clear that modern manufacturing supply chains are inherently transactional and complex,” said Lawton.  “As a result, UK manufacturers seem not to have benefited much from the expected boost to their competitiveness. And there has to be a suspicion that fears of the damage that could be done by a poorly negotiated Brexit are beginning to weigh heavily upon our makers.”

The report echoes the findings of another important industry bellwether, the IHS Markit / Cips UK Manufacturing Purchasing Managers’ Index which was published last week (2nd October). The latest report, which is based on a survey of purchasing managers in more than 600 companies, points to a slowdown in manufacturing growth triggered by the rising cost of imported materials and fears over Brexit.