Manufacturing outlook in the South East remains steady but orders continuing to point down

Arbinder Chatwal, partner and head of manufacturing at BDO in Southampton

The performance of London and South East manufacturers has remained largely healthy in the first few months of the year, with output balance in positive territory and export orders remaining one of the most positive amongst all of the regions across the UK, according to a major survey published today by Make UK the manufacturers’ organisation and business advisory firm BDO LLP.

According to the Q1 Make UK/BDO Manufacturing Outlook survey, while the business confidence indicator is at its lowest since 2016, the South East is still close to the top of the regional ranking despite a sharp contraction since last quarter.

The positive news is largely a result of an upturn in the fortunes of companies producing mechanical equipment across the region, which has helped mitigate a slowdown in the electronics industry in recent months.

Domestic orders continue to slow down with a balance now at 13%, down from 24% at the close of 2018. By contrast export orders, which have been a big driver for manufacturing growth in recent years, bucked the national trend reporting a balance of 31%. This compares to a national figure for export orders of just 12%.

Make UK Region Director South, Jim Davison said:

“While it is good news that output remains healthy, it is no surprise that all the economic forecasts indicate that this will not last. Manufacturing needs certainty over Brexit to boost orders and exports and to protect the jobs of nearly three million people working in the manufacturing sector across the UK.

“Investment cannot recover while uncertainty continues to rule our political landscape. UK manufacturing needs a deal and time is running out. It has been just under six weeks since the Withdrawal Agreement put forward by the Prime Minister was soundly rejected by the UK Parliament, yet we are still hanging in limbo with no agreement amongst politicians about our future direction. This has to stop and it has to stop now.”

Arbinder Chatwal, partner and head of manufacturing at BDO in Southampton, said:

“Manufacturers across the South East have shown their resilience in the first quarter of the year and have bucked the national trend in many of the key performance indicators, most notably in export orders.

“Demand from Europe and the US has helped sustain manufacturing growth over the last few years. Despite good results for firms based in the South East, the UK as a whole has seen an overall fall in export demand. This, combined with the ongoing uncertainty and absence of political leadership, could prove to be a real drag on growth for the rest of the year.”

The latest forecast, based on soft Brexit, would see the UK economy expanding by 1.1% and 1.7% in 2020. But for manufacturing, Make UK is predicting a 0.3% contraction this year with a bounce back of 1.4% in 2020. However, business investment after a bad 2018 won’t be able to recover until 2020 even if Brexit situation is solved quickly.