Mixed picture for manufacturers as Covid continues to bite - BDO

Manufacturers in the West Midlands are seeing a mixed picture of marginal improvements in outputs and worsening investment intentions in the first quarter of the year, according to a major survey published today.

The Make UK and BDO commissioned survey also shows the brutal impact of the pandemic with the sector overall seeing a drop in output of 10 per cent nationally last year. However, reflecting the more positive picture as the year progresses Make UK has upgraded its growth forecasts for the sector for 2021.

According to the survey, output in the West Midlands improved from the end of last year but remains marginally negative at a balance of -4 per cent.

Recruitment intentions have also remained negative as have investment intentions which, at a balance of -38 per cent, are the worst of any UK region.

Make UK also warned that the main drag on a more positive picture through the year remains the continuing difficulties for exporters to the EU. In response it is urging government to work with industry to smooth out the bureaucracy and other border related issues.

In response to the improving business conditions through the year, Make UK has upgraded its forecasts for manufacturing growth this year to 3.9 per cent, up from 2.7 per cent at the end of 2020.

Charlotte Horobin (pictured), region director for Make UK in the Midlands said: “After the seismic shock to the sector last year, manufacturers in the West Midlands are seeing a slow road to recovery, especially given the major structural issues affecting the automotive sector and its supply chain. The major cloud on the horizon, however, remains the transition to new trading arrangements with the EU which go beyond 'teething troubles '.

“Government must recognise this and work with Industry and the EU to smooth these problems out, or the problems we are seeing now will become structural and permanent. This will have long-term consequences for exporters who will lose business and importers who will choose to give up on the UK market altogether. ”

Jon Gilpin, head of manufacturing at BDO in the Midlands, commented: “With West Midlands manufacturers reporting the lowest investment intentions of any UK region, the Chancellor 's recently announced super-deduction tax incentive presents a real opportunity for those firms with access to finance to bring forward investment plans into the qualifying period and boost their productivity. However, the proposed two year window is arguably too short. What the region 's manufacturers really need is certainty over the longer term to allow the sector to confidently invest over a 10-15 year horizon.

“While the results of this quarter 's survey are in some ways encouraging, the next six to nine months will nevertheless be critical for those manufacturers facing financial distress. ”