United Kingdom
Sharp rise in manufacturing confidence in Q3 - Tom Lawton
Confidence levels in manufacturing are rebounding strongly according to a recent survey conducted amongst 105 businesses across the UK.
In a survey covering aerospace & defence, food manufacturing, automotive, engineering, electronics, building materials, chemicals and pharmaceuticals businesses across the UK, 50 per cent of respondents in Q3 said they were confident about the outlook for their business over the next six months, a sharp rise from Q2, when only 37 per cent said they were confident.
Only 13 per cent of respondents were downbeat – mostly engineering and technology businesses, which have been hard hit by the fall in automotive and consumer electronics markets. Their outlook is understandable, particularly in the light of recent disappointing news that the UK economy shrank by another 0.4 per cent in the third quarter, making this the longest recession since 1955.
However, as Europe and the US return to growth, demand for UK products is recovering. The well respected Manufacturers Purchasing Managers Index (PMI) jumped to 53.7 in October - its highest level for two years as a result of a 69-month high in new orders. Also, the ratio of new orders-to-stocks of finished goods – which tends to move ahead of production trends was reported at its highest level since 1992.
Although conditions for manufacturers across most sub-sectors remain challenging, the lessons from past recessions are that businesses that continue to invest are in a stronger position to profit from the upturn.
When asked about their R&D spending, 40 per cent of respondents to our research replied that they spend over two percent of their turnover on R&D. This group included a significant number of smaller firms - with a turnover below £30 million - in the automotive, aerospace, defence, technology and optical sectors. Smaller companies tended to invest a relatively larger percentage of their turnover in R&D because they are growing businesses competing in sectors where technology is constantly changing.
Almost a third of companies plan to increase R&D investment next year, while nearly 65 per cent will keep R&D investment at the same level. Half of pharmaceutical and chemical firms and a third of automotive and building materials firms plan to increase their R&D investment. Just seven per cent plan to reduce their investment.
The outlook for the sector remains fragile but despite this manufacturing confidence is rising sharply, backed by recovery in our major markets, the US and Europe and an increased volume of orders. With continued investment in R&D, manufacturers should be in a position to profit from the upturn.
If you’d like more information about how BDO's manufacturing team can help you, please contact your local BDO Partner, or Tom Lawton, Head of Manufacturing at BDO.