According to the Q2 Manufacturing Outlook survey published by Make UK, The Manufacturers’ Organisation and business advisory firm BDO LLP, domestic and export orders are continuing to trend down as the boost of artificial stockpiling unwinds, whilst growing evidence shows overseas customers are switching their supply chains away from the UK.
Key survey findings include:
A slight increase since Q1 in business confidence, and in the UK economy, which the report attributes to relief that a March/April no deal exit from the EU was avoided.
Following two quarters of stability, output contracted. The Q2 balance remained positive at +17% but fell significantly from a Q1 balance of +22%. The report indicates further contraction is to be expected in the next quarter to a balance of +11%. Following a ‘good run’ in Q1 expectations for the Metal Products sector in the next quarter are ‘not great’ – the balance of change for the sector is forecast to fall from 39% to 8%.
The total manufacturing order balance halved since Q1, moving from +16% to +8%. Domestic orders (Q1 balance +11%) performed better than exports (balance at +8%). Nevertheless, this was the tenth quarter in a row where domestic, export and total orders were in positive territory. Exports are expected to pick up slightly in Q3, surpassing domestic orders. The gap between orders and output is expected to close due to the end, at least for now, of stockpiling activities.
Both employment and investment balances fell but remain significantly above the 0% threshold. The employment balance is expected to fall further in Q3 to +6%, against +16% in Q2. The report says the current balance for investment is in line with the downward trend started at the end of 2017, and following a trajectory also seen in official data. Employment intentions are still higher than investment intentions, with companies more willing to hire than invest in other, less fungible, resources.
Make UK/BDO forecast the UK manufacturing sector will increase output in 2019 by 0.2%, compared with 0.9% in 2018. 2020 output growth is forecast at 0.8%. UK GDP growth is forecast at 1.2% in 2019 and 1.6% in 2020, although this figure is based on an agreed exit from the EU, not a ‘no-deal’ scenario.
In its media statement on the Q2 Survey, Make UK issues a vehement warning about the potential for a ‘no-deal’ exit from the EU: “Britain’s manufacturers are warning of the potential impact of ‘no deal’ economic lunacy as a survey shows that prospects for the sector are continuing to weaken as the uncertainty of Brexit drags on.”
The full Make UK/BDO Manufacturing Output 2019 Quarter 2 is available here:https://www.makeuk.org/-/media/EEF/Files/Reports/Industry-Reports/Make-UK-BDO-Manufacturing-Outlook-Q2-2019.pdf