UK SME manufacturing sector buoyant and confident about future growth

The latest MHA Manufacturing and Engineering Report confirms UK small and medium-sized enterprises (SME) manufacturers remain optimistic and confident about future growth, despite the uncertainty surrounding Brexit, rising production costs and skill shortages.

• 71% of manufacturers reported revenue growth in the last year and 78% predict business growth over the next 12 months. 
• 51% have high or above average business expectations over the next 12 months (increasing to 54% over the next three years) and 50% are looking to increase their capital investment spend in the coming year.
• 58% of respondents export products and all exporters currently do so to the Eurozone.
• 93% believe their main competitors are based within the UK and 35% agree they’re within their own region.
• Only 30% cite Brexit uncertainty and trading tariff concerns as their main barrier to future success and just 34% have a strategy in place for post Brexit - 66% feel they cannot plan for the impact until they know the Government’s strategy and EU response.
• 92% believe rising production costs will impact their business next year, but in a positive move, 67% intend to absorb any price increases, rather than pass them onto customers, and 52% intend to achieve this through improved productivity and efficiency.
• Staff recruitment is an equally big issue; 81% of respondents report problems in finding people, yet 49% expect to increase payroll numbers next year. Out of these, 63% will opt for apprentices. 

The manufacturing and engineering survey - compiled by MHA, the UK-wide group of accountancy and business firms and supported by Lloyds Bank Commercial Banking in association with the Institution of Mechanical Engineers – reveals a buoyant sector that’s not letting political and economic uncertainty drag it down. 

Businesses are not only predicting future growth; over half are confident about the future, they’re making themselves more efficient in order to counter price rises and are looking for ways to bridge the skills gap.

Respondents identified their main business growth drivers as increased customer demand (18%), diversification (14%) and a wider product range (13%) and viewed the Eurozone a distant threat (39% considered it a competitor). China was thought to be a competitor by 21%. 

When considering rising production costs, firms believe this will be as a result of the increasing cost of raw materials (72%), wage costs (66%), volatile energy prices (47%) and changes in the cost of components (43%). To counter this, 52% say they have included lean manufacturing/ engineering principles in their future business strategies and 28% would opt for lean manufacturing processes (used to tackle recruitment issues too).

When looking at productivity barriers, 27% cite poor factory/plant infrastructure, 26% low skills levels, 23% staff shortages and 22% lack of investment. 

Growth barriers were identified by a few; 19% said recruiting appropriately skilled staff could hold them back, 11% cited working capital constraints and 10% the global economy. To counter this, 41% say they will invest in existing staff, offering training, benefits and production bonuses and 22% will update machinery. 

Of those planning to recruit, 73% will look for production staff, 11% design/research & development people and 8% sales and marketing. The biggest concern for 34% of businesses is finding employees with the right skills. Of those struggling to recruit, 50% cannot find skilled machinists/technicians, 27% semi-skilled staff and 22% graduate engineers. This further highlights the call from businesses for the government to implement tangible initiatives that will expand skills’ training for the future work-force at all levels of education.

Research and development is equally high on the agenda, with 89% of respondents investing in this area. Yet, MHA is concerned that almost half of these firms, 48%, failed to apply for R&D tax credits, saving themselves thousands of pounds.  

Chris Barlow, Head of the Manufacturing Group at MHA, comments: “This survey gives great insight into what’s happening within this sector at a ‘grass roots’ level. Yes, there are concerns over the rising cost of materials, the unpredictability of the pound and a continuing crisis around the skills shortage, but businesses are demonstrating their resilience. Brexit uncertainty is not necessarily having the impact some would lead us to believe what our respondents agree on is that they need greater support from the Government over automation and forging better links with local schools, colleges and universities to improve the talent pool.”

Dave Atkinson, Head of Manufacturing, SME, Lloyds Bank Commercial Banking, continues: “The findings of this report put a spotlight on the current sentiment, issues and opportunities that Britain’s decision-makers face. Manufacturing has never been more important to the success and growth of the British economy and this is even more significant in the coming months and years as the impact of leaving the EU emerges and the landscape for our clients’ changes.”

Matthew Rooney, Engineering Policy Adviser at the Institution of Mechanical Engineers, concludes: “We are pleased to once again work in partnership with MHA to produce this year’s Manufacturing and Engineering Report. 

“Although the risks of Brexit loom large this year, the Report shows that companies in the UK are still optimistic about the future. Indeed, the development of the Government’s Industrial Strategy, along with Sector Deals, present exciting opportunities for innovation in the manufacturing industries. 

“The Report also highlights that skills shortages are an ongoing concern in the industry. The Institution will continue to work with companies to promote engineering as an attractive career path for young people to ensure the country has the skills required to thrive in a competitive globalised world."