ECONOMIC REVIEW JUNE 2019
MAKE UK:
ECONOMIC REVIEW
UK manufacturing remains strong, but Brexit confusion and a global slowdown
in vehicle production are causing potential headaches for those in the sector
BY SEAMUS NEVIN, CHIEF ECONOMIST, MAKE UK
Since 1896, Make UK has championed
UK manufacturing. That was the same
year Britain opened its first car factory in
Coventry and, helpfully, the government
raised the speed limit on our roads from
4 to a heady 14mph!
Manufacturing has been at the heart of the
British economy ever since, in both good times
and in bad. The recent announcements about the
British motor industry and related manufacturers
in the steel and aerospace sectors remind us of the
challenges UK manufacturers are facing today.
This is a critical time, with many challenges as
well as significant opportunities ahead. Beyond
Brexit, artificial intelligence, digitalisation,
automation, enhanced globalisation of markets and
an ever greater demand from consumers for quality,
precision and pace are all transforming the industry.
As the largest national organisation for
manufacturers, Make UK is more than your
standard representative body – we support our
sector with Brexit insights, HR and health & safety
advice, skills training and productivity consultancy.
The more they talk to us, the more we know
about them and the more we can help.
So what are manufacturers telling us?
Well on the positive side, this quarter, output
has boomed. So has employment. Indeed, the
employment rate was at the highest level seen
since 1971, when Janis Joplin topped the charts
with the song Mercedes Benz.
Orders are, however, decreasing, meaning
recent output has not been driven by demand.
For the second quarter in a row, domestic orders
have exceeded export orders.
Although wages in the overall economy have
risen by 3.3% – 1.5% above inflation – wages in
manufacturing have risen by a lower 2.2% so it
remains unlikely that many automotive factory
workers are going to be able to afford to buy a
Merc on the back of this bonus...
Export orders from Asia and Europe remain
near their lowest since 2016 as foreign customers
increasingly move away from buying UK goods due
to Brexit uncertainty.
Stockpiling ahead of the original Brexit deadline
of 29 March was the highest level ever recorded in
the G7. The result, as we now know from our latest
figures is that imports rocketed
up by 11% in Q1 this year.
Thanks to increased producer
price pressures coming from oil
and the tightest labour market
on record, input costs went up
but profit margins went down.
Looking further under the
bonnet, business investment has
worryingly contracted for four
quarters in a row for the first time
since the Global Financial Crisis
in 2008. Productivity growth
and output per worker has also
been negative for the last three
quarters (albeit partly because of
increased hiring of staff).
The effect of stockpiling
and even more of the difficult
investment and global demand
situation had a clear and
different effect on subsectors
performance. The potential
cliff-edge scenario set for 29
March pushed production in
heavy regulated sectors such as
pharmaceuticals and chemicals
to incredibly high levels, with
companies producing at full
speed and trading fast across
the Channel. The precautionary
activity also increased output to
vertiginous production levels in
sectors historically not used to
very rapid expansion.
If stockpiling boosted
production, it wasn’t the case
for all manufacturers. The
plunge in investment in the UK
and the slowdown of the global
economy are affecting negatively
machinery producers which are
suffering a contraction together
with the motor vehicle sector
and its vast supply chain hit by
Brexit uncertainty, the global car
manufacturing slowdown, and
the drop in car registration.
Seamus Nevin
was appointed
Make UK’s chief
economist in
January 2019
The consequences of this
scenario are also well highlighted
in the regional performances
with regions showing different
stories. As an example, the
Midlands enjoyed the food &
drink boost but it also faced
some difficulties related to the
motor vehicles sector. The North
West saw growth grew in output
and employment thanks to the
pushed derived from chemicals
and pharmaceuticals production.
The mixed messages coming
from the stockpiling effect which
will fade away in the longer term
saw companies keeping a higher
than usual level of inventories
and the new Brexit deadline
pushed close to the end of 2019,
resulted in a revision to Make UK
forecasts for the sector up slightly
to 0.2% growth in 2019 with
0.8% in 2020. We now expect
the overall economy to grow by a
slightly improved 1.2% this year
and 1.6% next year.
The resilience of the sector
shows that manufacturing can
continue to be the engine of our
economy long into the future. It
already contributes more in GDP
terms than even financial services
or construction. Manufacturing
businesses contribute nearly
three million jobs, most of which
pay above the national average,
the sector contributes half of UK
exports, comprises the bulk of
this country’s R&D spend, and
the UK is today the ninth largest
manufacturing economy in the
world in GDP terms.
The manufacturing sector is
vital to the British economy, and
the industry must work together
to make sure it is able to build
on this success.
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