UK manufacturers are more optimistic than they have been for four years about the global economic outlook, according to a survey from the manufacturers’ organisation EEF and global insurer AIG.

Manufacturing and productivity optimism in the UK

Some 40 per cent of companies are planning for growth this year with only 19 per cent expecting a decline in business.Not surprisingly, the uncertainties surrounding Brexit – particularly rising costs and volatility in the value of sterling – are providing the biggest concerns, but fears over increased US protectionism and a slowdown in China are also worrying manufacturers.EEF added, “The survey shows performance at individual firm level is set for a significant uplift with 68 per cent of companies expecting to increase productivity and almost three quarters intending to boost investment in automation.“In contrast to some fears, this is not set to result in reduced employment as half of companies plan to increase their headcount (up from a third last year) in 2018 compared to just ten per cent who expect to reduce it.”The survey provides little evidence that manufacturers are, as yet, planning to relocate large parts of their operations to the EU or elsewhere because of Brexit.“Whilst seven per cent of companies are planning to move production to the EU and six per cent to a non-EU location, a slightly greater proportion (12 per cent) are planning to move production back to the UK from the EU whilst 22 per cent are planning to step up their investment in the UK,” said EEF.

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Brexit workforce concerns

But 38 per cent of firms expressed concerns that Brexit could result in the loss of workers from other EU nations, while almost a third foresaw dangers in the potential relocation of major customers.Stephen Phipson, EEF chief executive, said, “Manufacturers left 2017 in an upbeat mood and are set to outpace the rest of the economy again this year as the growth in global trade continues to gain momentum. That is not to say everything in the 2018 garden is rosy, however, as there are plenty of factors that could puncture this positive picture.“Chief amongst these is Brexit, which has put the investment outlook on a knife-edge. As such, it is essential that the government gets a transition deal as a matter of urgency and sets out with utmost clarity as to what kind of final deal it is looking for. “In tandem with this, it also needs to crack on a pace with its Industrial Strategy. This will be vital in providing manufacturers with the confidence to invest in strategies to improve their productivity and enter new markets.”

Cyber security moves to forefront

Simon Gallimore, manufacturing industry UK lead at AIG, added, “It is encouraging to see optimism from UK manufacturers as we set off into 2018, despite the challenging economic backdrop. While the uncertainty surrounding Brexit understandably features highly in perceived risks for the manufacturing industry, it is interesting to see that cyber security is front of mind for executive leaders.“A cyber-attack can swiftly interrupt the supply chain, potentially causing severe disruption to manufacturers. As technology and data start to play increasingly critical roles in the industry, companies will inevitably find themselves more vulnerable to cyber breaches.“Manufacturing is key to the UK’s performance on the world stage, and plays important part in improving the health of the economy. Robust cyber security measures and thorough employee training on cyber security are vital to help protect against the increasing threat of attacks.”

Business confidence continues to hold

Research by Lloyds Bank, also published on Monday, found that business confidence was holding steady, with investment and hiring intentions set to increase despite wider concerns about the economy.A survey of 1,500 firms found that one in four cited weaker demand at home and abroad as the biggest risk this year.Gareth Oakley, managing director SME banking at Lloyds, said, “Despite market uncertainty and global political turbulence, businesses are still upbeat.“Many are looking to boost their investment and staff numbers which is very encouraging, even though challenges remain in recruiting skilled labour.“While the Brexit negotiations continue, businesses are focused on short term threats, including managing higher costs and maintaining positive cash flow, so that they can prepare for whatever 2018 brings.”

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Read more about the future of the UK business in the Winter issue of our magazine 

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