Manufacturers put brakes on investment amid Brexit uncertainty

The annual investment monitor survey carried out by manufacturers’ organisation the EEF and Santander found that only a third of companies planned to increase their investment in plant and machinery in the coming two years – the lowest figure in the past five years.

The survey showed that order book uncertainty and political uncertainty were the main factors deterring investment, with political uncertainty at its highest level in five years.

The proportion of companies holding off on investment entirely until there is clarity on a Brexit deal rose from 13.5% last year to 17% this year. Meanwhile 54% of manufacturers said they were only investing enough to satisfy current demand, or holding off entirely – up from 50% last year.

The fall in the number of companies saying investment will increase comes despite output growth of 2.5% in the past year, which led to more manufacturers investing in plant and machinery in the last two years.

The EEF said waning order book demand was due to slowing eurozone growth and the implementation of trade tariffs by the US on China and the EU.

“While the impact to UK manufacturing is likely to have been limited so far, given that these tariffs affect a limited proportion of bilateral trade, the real concern is the prospect of further escalation. The Trump administration has already extended the steel and aluminium tariffs to the EU, and with the export intensive nature of manufacturing, further measures are a worry,” the report said.

Manufacturing expert Nicole Livesey of Pinsent Masons, the law firm behind Out-Law.com, said: “The results of the survey are not surprising given the significant impact the final Brexit deal, or no deal, could have on manufacturers who are often reliant on moving significant inventory across EU boarders meaning that tariffs and additional delays on borders will have expensive ramifications to their UK operations.”

Pinsent Masons’ trade expert Guy Lougher said the survey’s findings on investment plans were notable.

“What is particularly interesting from the survey is the analysis of precisely what investment is being held back by Brexit-related uncertainty. Here the report found that investment in plant and machinery is most adversely affected, followed by investment in new and improved buildings, R&D programmes, and then IT systems and hardware,” Lougher said.

The EEF report said plant and machinery were the most important areas of a manufacturer’s core business needs, and was the area where most would invest if they had the opportunity. However more than half of respondents said they were holding off on this for the time being.

The report warned that the lack of investment would have a “significant impact” on the UK’s productivity, particularly compared to competitors that were not dealing with Brexit.