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British manufacturers and engineers target growth despite concerns over EU exit plans

British manufacturers and engineers are optimistic of their future growth prospects, but are cautious of the impact leaving the European Union could have on their plans, according to a new survey from MHA and Lloyds Bank Commercial Banking.

The fifth annual survey from MHA, the UK-wide group of accountancy and business advisory firms, was sponsored by Lloyds Bank’s manufacturing team for the second year. It asked over 550 small to medium sized manufacturing and engineering businesses from across the UK for their views on the challenges and opportunities facing the sector.

Barriers to growth

Over two thirds (69 per cent) of businesses questioned are optimistic about their growth prospects in the coming 12 months. However, a note of realism was struck in relation to concerns over the way negotiations over the country’s exit from the EU will go, with over a third of businesses perceiving this uncertainty to be a barrier to growth.

After the referendum, the biggest cause for concern was the skills gap. Nearly half (47 per cent) of businesses are hoping to recruit over the next 12 months, an increase of eight per cent over 2015, but the inability to find skilled staff to do the job remains a major problem for over two thirds (71 per cent) of those firms. 

Over 90% of companies believe that their production costs will rise in 2016/17 due to the increasing cost of raw materials together with higher wages. As a result, productivity gains are being seen as important in bringing down costs, as almost three quarters (71 per cent) won’t be passing the additional costs onto their customers.

New opportunities

Securing opportunities to trade globally remains a priority for manufacturers, with 65 per cent of businesses exporting, up three points on 2015. The Eurozone remains the most popular trading partner for British firms, followed by North America and Asia.

Industry 4.0 is building momentum, but the growing trend towards sophisticated automation and data exchange in manufacturing technologies is a principle that almost three quarters of the survey respondents didn’t understand. This suggests that more work needs to be done across the sector to make sure manufacturers are aware of the opportunities that automation presents.

Chris Coopey, Head of Manufacturing at MHA, commented: “Our latest survey demonstrates that the manufacturing and engineering sector remains innovative and resilient despite the uncertainty around the upcoming European Union exit negotiations. It also shows that much can still be done to help UK industry increase its global market share and offset the trade deficit.

“Urgently needed is a well thought through skills strategy to produce a pipeline of educated and motivated candidates into the apprenticeship and further and higher education systems to meet the growing demand. Whilst businesses can and should be more proactive in helping themselves, a coherent industrial strategy with cabinet support is a must if the sector is to reach its full potential.”

Dave Atkinson, Head of Manufacturing at Lloyds Bank Commercial Banking, said: “While the result of the EU Referendum has left manufacturers with some questions over how they will fulfil their future plans, many are actively identifying new opportunities with global trade partners to help deliver sustainable growth.

“Closing the skills gap remains crucial to sustain the long-term success of the industry, and we are actively supporting the development of new apprentices at the Lloyds Bank Advanced Manufacturing Training Centre in Coventry.

“Manufacturing has never been more important to the success and growth of the British economy, and continuing to work closely with firms through this evolving economic landscape will ensure they maintain their competitive position in domestic and global marketplaces.”

Main findings:

· Half of all respondents put skills shortages at the top of their agenda. Most businesses want government to expand skills training for the future work-force in Secondary Schools, Higher and Further Education (FE) colleges.

· 68% of respondents believe their main competitors are UK based and 32% said their main competitors are based within their own region of the UK.

· 47% of respondents expect to increase their staff numbers in 2016 (an increase of 8% from last year), with 57% of companies intending to take on apprentices or trainees.

· Of the respondents that anticipate their staff numbers increasing in the next 12 months, 59% need to recruit production staff. However, 41% indicated that they have trouble recruiting skilled machinists / technicians.

· 18% of businesses reported that recruiting appropriately skilled staff is the main barrier to growth over the next 12 months; this is a decrease of 10% from last year which is encouraging although this may just be a reflection in the shift of concern towards the effects of leaving the EU.

· Where recruitment is a barrier to growth, 31% of respondents favoured adopting lean manufacturing strategies and 23% favoured automation or further automation as a coping strategy. Shift working or flexible working patterns (25%) was also seen as a viable option.

· When asked about the availability of skilled recruits, only 11% had a positive outlook compared with 49% having a negative outlook.

The MHA Manufacturing Survey also finds around eight in every 10 companies committing to R&D investment this year, although surprisingly 10% remain unaware of the benefits associated with R&D Tax Credits.

MHA surveyed over 560 clients and contacts in the manufacturing and engineering sectors in July 2016. The respondents ranged from companies turning over less than £1m to global players with significant industry presence, nationally and internationally. The survey report includes analysis by Professor Rajkumar Roy at Cranfield University and from Philippa Oldham, Head of Transport and Manufacturing at the Institution of Mechanical Engineers.

A copy of the report can be downloaded here – http://mha-uk.co.uk/1275-2/

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