UK manufacturers still wary of borrowing from banks

The report by the EEF found that 55% of firms are holding more cash on their balance sheets compared to pre-recession levels

Manufacturers remain disengaged from the banking sector, which is putting growth and investment at risk, according to a new report by EEF – the manufacturers’ organisation.

The research found that 85% of manufacturers are confident of securing finance, but only 35% are more likely to use finance than they were two years ago.

Manufacturers are still more likely to use ‘traditional’ products with medium-term debt (64%), asset finance (56%) and overdrafts (50%) the most common types of finance they would consider.

The report found that 55% of firms are holding more cash on their balance sheets compared to pre-recession levels. However, the increased propensity to hold cash on their balance sheet leaves them particularly vulnerable in the event of negative interest rates, as some banks have already flagged the prospect of charging customers for having credit balances.

Manufacturers still have solid pre-Brexit vote investment intentions, according to the research, but 53% would postpone or cancel investment if they could not fund it themselves.

Lee Hopley, chief economist at EEF, the manufacturers’ organisation, says: “Manufacturers’ reluctance to rely on external finance is a persistent hangover from the credit crunch, where trust and confidence in the banks stalled and never quite recovered. But with the Brexit vote dampening investment intentions and adding to uncertainty, this pre-existing condition could now become further aggravated, posing a risk for growth.

“This makes the Competition and Market Authority's package of reforms even more important. The CMA cannot prevent a fall in investment intentions, but it can help to strengthen supply dynamics in the market and resolve some of these long-term issues by providing swift and firm remedies that pack enough punch to stop the rot. Whether the next recession is in one year or 20 years’ time, the problems in this vital market must be fixed. Manufacturers must have access to finance - progress needs to be seen.”

The study found that lower costs (59%) and the ability to demonstrate manufacturing-specific expertise (53%) would encourage them to consider increasing their use of external finance.

EEF’s full report can be read here.