The ageing machinery, and other assets, of the UK's manufacturing sector is now worth less than it was in 2005 following years of underinvestment during the recession says LDF, a independent finance provider.
Underinvestment by manufacturers in their business assets may have seen their value erode by £8.4 billion pounds from the start of the credit crunch in 2008 to stand at £245.5 billion* at the start of 2014. LDF says that, at current rates of investment, this will mean that the manufacturing sector will have experienced a lost decade of investment.
LDF says that since the credit crunch UK businesses have put off capital investment as a result of a shortage of funding from traditional sources. However, with more money being made available through alternative forms of finance, such as leasing, manufacturers are now beginning to invest again.
LDF explains that higher levels of capital investment in new machinery and IT is required if UK manufacturers are to keep pace with rapidly growing companies in emerging markets. Since 2008 the level of investment in UK manufacturing has dropped off substantially and it is feared productivity in the sector will continues to suffer as a result.
LDF adds that the Purchasing Manager's Index (PMI), a measure of confidence in the manufacturing sector, points to improved expectations for coming months. With manufacturers expecting growing order books they will be looking to invest in plant in order to grow.
With bank lending still difficult to access for some, an increasing number of companies have found a solution by using specialist asset finance brokers. Asset finance allows firms to invest in their machinery, IT and other equipment, without making large commitments of capital upfront.
Peter Alderson, Managing Director of LDF says, "In the last six years the value of UK manufacturers' equipment has dropped, while key global rivals in China, Korea and Taiwan have invested relentlessly. If UK manufacturers are going to compete, a huge programme of investment is needed to catch up."
"The pace of technological change means that equipment becomes out-of-date more quickly than ever before. In a globalised economy the UK's manufacturers are competing with businesses from all corners of the planet. Any inefficiency translates to either higher costs for customers or lower profits for manufacturers."
"The recent uptick in manufacturing confidence shows that manufacturers know they have an opportunity to grow.
"Asset finance allows manufacturers to access the most up to date machines and processes without compromising their working capital levels. We have recently worked with manufacturers throughout the UK to fund their plans for growth. If the UK is to be successful in its attempts to rebalance the economy it is imperative all manufacturers are able to access the capital they need to invest."
*Net capital stock in UK manufacturing (at chained volume measures i.e. adjusting for inflation). Source: ONS