A no-deal Brexit and tensions between China and the USA are two factors denting manufacturers’ confidence, with many fearing a recession in the next 12 months.
These are the findings from a survey conducted by Lloyds Bank Commercial Banking of over 200 UK manufacturers that found business confidence – based on the outlook for sales, orders and profits – down from 30 per cent in January to 24 per cent.
The sector’s confidence remains broadly in line with the UK average of 25 per cent but the dip reflects concerns about the economy with 68 per cent of firms saying they expect the UK to enter recession within the next 12 months.
According to Lloyds Bank Commercial Banking, manufacturers are also worried about tension between the US and China with 53 per cent expressing concerns about an all-out trade war between the two nations.
The sector has reported a slowdown in recruitment with a net balance of five per cent of firms planning to increase staff numbers in the next six months, down from 13 per cent in January. More than half (55 per cent) of manufacturers reported difficulty in hiring skilled staff, which is up from 50 per cent at the start of the year.
Investment intentions have also slowed with a net balance of eight per cent of firms saying they plan to increase investment over the next six months, which is down from 15 per cent in January.
Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, said: “The UK manufacturing sector is truly global so it’s no surprise that the prospect of a trade war between the US and China is on the minds of many. This is a reminder that exporters must closely monitor geopolitical tensions.
“Nevertheless, the sector’s outlook remains broadly in line with the wider UK economy. Firms are creating new jobs and are planning to invest, albeit at a reduced rate compared with what we saw at the start of the year.”
Manufacturers reported that Brexit uncertainty – cited by 26 per cent of firms – remains the biggest challenge they face. Four in ten said that a no-deal scenario with the EU would have a negative impact on their business compared to 24 per cent who said it would be positive.
While the value of sterling bounced back somewhat following its sharp decline in the aftermath of the EU referendum in June 2016, on Monday the pound hit an 11-month low, fuelled by trade secretary Liam Fox’s comments on the likelihood of a no-deal Brexit. The Lloyds survey found that two-thirds of manufacturers expressed concerns about the potential effects of currency movements over the next six months.
“There are headwinds for the sector, particularly around international markets, but as always manufacturers are approaching these challenges with resilience,” said Atkinson. “We’re hearing anecdotal evidence of firms starting to reshore supply chains in response to uncertainty about the future relationship with the EU and businesses are building strong customer networks that continue to bolster their order books.”