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UK manufacturers slash growth forecast ahead of Brexit

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Output and orders are set to improve but will still be substantially below historic averages. Photo: Costfoto/Barcroft Media via Getty Images
Output and orders are set to improve but will still be substantially below historic averages. Photo: Costfoto/Barcroft Media via Getty Images

Britain’s manufacturers have slashed their forecast for growth next year with a darkening picture for exports ahead of the departure from the EU.

A new survey by Make UK and business advisory firm BDO also shows the brutal impact of the pandemic with the sector forecast to see a 12% drop in output this year.

The survey of 306 companies, conducted between 4 and 25 November, also released substantially downgraded growth forecasts for 2021 to just 2.7%, down from 5.1% last quarter.

Output and orders are set to improve but will still be substantially below historic averages.

As with recent surveys there was a marked divergence in performance by sector in the last quarter. Electronics was one of the few sectors in positive territory with an output balance of 6%, suggesting a continued boost from investment in digital technologies as well as consumer purchases ahead of Christmas.

READ MORE: Lords committee calls for new UK job creation plan to prevent unemployment crisis in 2021

By contrast, the motor vehicles sector troubles continued with an output balance of -14% last quarter and, a forecast export order balance of -33% in Q1 2021 suggesting the sector is fearful of the impact on exports of leaving the EU.

Orders have improved to -3% from -40% and -53% respectively in the previous two quarters. However, looking forward, the export order balance is forecast to drop sharply to -14%, highlighting the concerns manufacturers have about the impact on exports as the UK finally leaves the EU.

Make UK warned that should the UK leave the EU with no trade agreement in place then this forecast may be revised further given the potential for significant damage to manufacturing, with the motor vehicles sector in particular especially fearful of the potential impact of any tariffs.

Chart: Make UK
Chart: Make UK

In addition to the darkening picture for exports, the survey shows investment intentions have now been substantially negative for three quarters in a row, a trend which Make UK believes is likely to worsen in the event of the further political turmoil that no-deal will create.

READ MORE: UK economic recovery lags global benchmark

Stephen Phipson, CEO at Make UK, said: “Manufacturing has stepped back from the abyss that it stared into earlier in the year. But, make no mistake it is going to be a long haul back, with talk of a V-shaped recovery nothing more than fanciful.”

Confidence picks up after a pandemic-related knock. Chart: Make UK
Confidence picks up after a pandemic-related knock. Chart: Make UK

Richard Austin, head of manufacturing at BDO added: “The prolonged negotiations with the EU have made this far more difficult than it should have been.

“Manufacturers are now desperate for greater clarity so that they can be released from the post-referendum paralysis which has made it nigh-on impossible to take long term decisions.”

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