Engineering news
The political upheaval caused by Brexit and Trump has not dented UK business optimism as manufacturing confidence has reached a 20-month high, according to the latest Business Trends Report by accountants and business advisers BDO.
The latest report shows continuing signs of encouraging economic prospects for the UK over the coming six months, despite uncertainty following the US presidential election and the UK’s decision to leave the European Union. BDO’s Optimism Index, which indicates how firms expect their order books to develop in the coming six months, continues to rise and now sits at 103.7 from 102.2 in December, above its long-term trend.
The Optimism sub-indices for both manufacturing and services are also higher this month. Manufacturing’s sub-index has risen to 102.2 from 99.4, passing the 100 mark, which indicates growth, for the first time since June 2015. The Services Optimism sub-index has also increased from 102.7 to 103.9 this month, a 14-month high.
Meanwhile, the BDO’s Output Index - which indicates how businesses expect their order books to develop in the next three months - has increased for the third consecutive month, rising slightly from 97.4 to 97.5.
BDO attributes the positive performance of UK businesses to an overall improvement in the global economy, the decrease in the value of sterling and better-performing key export markets.
However, despite the immediate benefit of sterling’s sharp fall in value and the optimistic mood of UK businesses, BDO said that sterling’s devaluation represents a “double-edged sword” as it continues to contribute to rising inflation.
BDO’s Inflation Index has increased to 104.5 from 103.8 and the upward trend is set to continue. While currency depreciation makes British exports more price competitive, firms’ input prices have risen sharply, squeezing margins. In January, Markit/CIPS PMI showed factory raw material costs rose at their fastest pace in more than 25 years, a result of higher prices for oil, steel and other import costs.
For the manufacturing sector to continue to thrive following Brexit, BDO said that UK manufacturers need to invest now to automate and digitise key business processes to remain competitive in a “more dynamic and technologically advanced market”. BDO’s New Economy report, which makes a number of policy recommendations for a post-Brexit UK economy, calls on the government to increase funding to support investment and help businesses modernise themselves for the challenges ahead.
Tom Lawton head of manufacturing at BDO, said: “The UK economy seems to be remarkably resilient. However, government still has much to do in these uncertain times if the UK is going to stay on the right economic track.
“The modern industrial strategy could be a step in the right direction. More importantly, simplifying regulation and taxes, and improving our education and training systems are high priorities for businesses in the new economy. And with government borrowing costs still close to all time lows, the opportunity to replace our worn out infrastructure is still an enticing one.”
Graeme Wright, associate director for the manufacturing, utilities, and services, for the UK and Ireland at Fujitsu, said: “Manufacturers that wish to capitalise on this new domestic demand need to be savvy to the ways in which they can adapt and advance their business. By seeking the right partners that can help with their technological needs in this new digital era, manufacturers can ensure that they are future proofing their business by being adaptable to the fast moving world around them. Ultimately those that are agile and embrace the latest technology will reap the rewards in the years to come.”