South East manufacturers continue to build momentum despite mounting risks

Arbinder Chatwal, BDO LLP

South East manufacturers continue to build momentum on the back of healthy demand – both at home and abroad, according to a major survey published today by EEF, the manufacturers’ organisation and accountancy and business advisory firm BDO LLP survey.

Total output and order balances across the South East are the strongest of all regions in the UK (59% and 55% respectively) illustrating the relative health of the region. Domestic demand and foreign demand both remain healthy, as the region benefits from the electronics boom as well as pick-up in metals sectors after past weaknesses.

The pick-up in activity is resulting in positive news on the investment balance, which more than doubled compared with last quarter’s results at 34%, up from 16%. Taken as part of the total UK picture, this is the strongest performing regions in the country when it comes to investment, and likely reflects capacity constraints in key sectors such as electronics and metals.

Looking ahead, confidence about firm level prospects is proving to be more durable than might have been expected, but the threat of escalating trade tensions and heightened concerns about a Brexit outcome that fails to deliver frictionless trade could quickly make trading conditions more difficult. Moreover, with the recovery in investment intentions unevenly spread across manufacturing sectors, we are cautious about the sector closing the productivity gap with competitors. Our central expectations is that manufacturing growth is still on the cards this year and next, but risks to that outlook are increasingly present.

Commenting Jim Davison, EEF Region Direction South said:

““These results show an extremely healthy picture for manufacturers in the South East. UK manufacturers in many industries are continuing to benefit from growth in the global economy; expanding their exports and driving ahead with new investments. But this is not an industry-wide phenomenon. Trade tensions, the Brexit debate reaching a crescendo and some wobbles in confidence about the UK’s economic outlook continue to make their presence felt across a number of manufacturing sectors. If these sources of uncertainty prove to be short-lived then growth across manufacturing looks like more of a sure thing next year. If not, then government will need to act to prevent investment plans from faltering.”

Arbinder Chatwal, Partner and Head of Manufacturing at BDO in Southampton said:

“Despite ongoing uncertainty, manufacturers in the South East continue to demonstrate resilience and confidence in at least the short term future thanks to buoyant domestic and global demand.

“The Government cannot afford to ignore the importance of UK manufacturing as we endure the twists and turns of EU negotiations and must minimise disruption to the sector by ensuring that Britain remains open for business with the EU as well as other key international markets.”