South West manufacturers hit hard by Covid impact says Make UK/BDO survey

South West manufacturers have slashed investment in response to the continued impact from the pandemic according to a major survey published today by Make UK and business advisory firm BDO.

According to the Make UK/BDO Manufacturing Outlook Q3 survey investment intentions fell by a balance of -31% in the last quarter.

Whilst not reaching the levels of cutbacks seen during the financial crisis as yet, the trend downwards is following a similar pattern to that seen at the time and reflects the difficult picture for the aerospace sector in particular which accounts for a fifth of regional output.

However, Make UK warned that given the uncertainty surrounding the Brexit negotiations and the very real possibility of ‘no deal’, the combination of that outcome with the continued impact of the pandemic could cause further damage to investment prospects in the latter part of the year.

The impact of Covid 19 also took a heavy toll on company order books and output in the South West with the balances for both falling by -31% respectively. Output levels in particular are significantly below the national average.

In response to the difficult trading environment, the prospects for recruitment remain negative although the proportion of companies intending to recruit improved slightly from the last quarter and is better than the national average.

Looking forward, given the impact on the sector, Make UK is now forecasting that manufacturing output will fall by almost 11% (10.9%) this year while it has downgraded its forecast for recovery in 2021 by more than a full percentage point from 6.2% to 5.1%. GDP is forecast to fall by -8.5% this year before recovering by +10.1% in 2021.

Jim Davison, Region Director for Make UK in the South West, comments: “Manufacturing has begun to climb away from the abyss that it stared into earlier in the year. But, make no mistake it is going to be a long haul back towards normal trading conditions, with talk of a V shaped recovery nothing more than fanciful.

“Having emerged from three years of political uncertainty at the end of last year, increasing talk of a final ‘no deal’ exit from the EU would be a final nail in the coffin for many companies. If we are to avoid this and, the avalanche of job losses that would follow in already hard hit areas and sectors, it is essential that the first step towards a fuller recovery is provided by a comprehensive trade agreement with the EU.”

Matthew Sewell, Head of Manufacturing at BDO in the South West added:”The continued collapse in investment intentions across the region is a real cause for concern. With a no deal exit from the EU – and associated logistics, customs and cost implications – looking increasingly likely, British manufacturers will need to step up a gear in order to compete internationally, and this will require significant investment in productivity and digitalisation improvements.

“No-one is in any doubt about the financial challenges facing manufacturers, but turning the investment taps off now will have serious medium to long term implications. The Government must be alive to this risk and provide the support required to help UK manufacturers through this transition period and beyond. Other countries – perhaps in particular Germany – do provide good examples of consistent long term support to their manufacturing sectors. The UK should look to adopt a similar approach.”