Manufacturers hedge against Brexit uncertainty

Credit: Shutterstock.com/ Nataliya Hora

Following our report on the IHS Markit/CIPS UK Manufacturing PMI, which went from 54.2 in January to 52.8 in February. We speak with a number of business leaders in our region, to ask what effect this is likely to have on the manufacturing sector.

 

James Pinchbeck, Marketing Partner at Streets Chartered Accountants

James Pinchbeck, Marketing Partner, Streets Chartered Accountants says:

“Is there a perfect storm brewing for UK manufacturing? The manufacturing sector has, for many months, been considering the impact of Bexit on the sector.

“It would appear that large and small manufacturers alike have been not just scenario planning, but have actually put in place plans hopefully to weather the storm; certainly if there is a no deal. For many, it seems, this has focused around an approach of preparing for the worse and hoping for the best. A move which has centred on being able to fulfil orders and meet demand, should there be a hiatus period following the 29th March.

“Supply chain management has been key to this and has included ensuring stocks of materials and finished goods are both in the right place, or available in the right volumes, to service order books at least for the 2nd quarter of 2019. Stock piling though doesn’t come without its cost, many manufacturers have had to secure additional warehousing and for exporters look at supply chain management, certainly in mainland Europe.

“The impact for such manufactures includes greater pressure on working capital, with more than normal levels of cash tied up in stock, storage and distribution.

“This is against a backdrop of declining consumer spending and business investment as both seek to weather the storm or build some level of resilience. Whilst some manufacturers have sought to invest both at home and overseas in plant and machinery and supply chain management this has come at a cost. To address potential labour shortages and to improve competitiveness many manufacturers and allied industries have, and continue to, look at greater use of robotics. Brexit does seem to have been a serious catalyst for change necessitating a change to the norm and bring new ideas etc.

“Certainly manufacturers, potentially, will face cash pressures – the impact of which, depending on the deal, will make up the magnitude of its impact.”

 

Duncan Johnston, UK manufacturing industry leader at Deloitte

Duncan Johnston, UK manufacturing industry leader at Deloitte, says:

“The start of 2019 saw a decline in PMI as manufacturers struggle with increased uncertainty around Brexit and the economic slowdown in Asia. Many businesses are continuing to stockpile both to safeguard their own future production and to meet their customers’ needs. The key question now is what happens in Q2?

“While overall sentiment is now at a 30 month low, UK manufacturing remains positive about future prospects with almost 46% of companies expecting output to be higher in a year’s time.”

 

Francesco Arcangeli, Economist at EEF

Francesco Arcangeli, Economist at EEF, the manufacturers’ organisation, adds: “UK manufacturing PMI contracted to 52.8, down 1.4 since December as Brexit uncertainty grows. Stockpiling activities are at 27-year high with storage of inputs continuing to increase rapidly in preparation for a potential No Deal. At the same time, orders are slowing and employment is contracting.

“EU manufacturing PMI is also trending downwards and getting ever closer to the 50 contraction threshold. Germany moved to negative territory for the first time in more than four years and Italy remained below-50 for the fourth month in a row. Italy has now officially entered technical recession while Germany is teetering above it by an inch. This is bad news for UK exporters, with the risk of a cliff-edge Brexit increasing and global trade headwinds brewing, manufacturers will be concerned at the possibility of a perfect storm.”