Manufacturers’ confidence drops in every region, but Yorkshire and the North East still optimistic

Manufacturers’ confidence drops in every region, but Yorkshire and the North East still optimistic

A new report out today from EEF, the manufacturers’ organisation, and BDO LLP, the accountancy and business advisory firm, shows that manufacturers’ business confidence has taken an across the board beating following last month’s vote for Brexit.

The report reveals that manufacturers in the Yorkshire and Humber, and North East now have the second and third highest levels of confidence respectively, only beaten by the South East and London region.

Every region in England and Wales has suffered a decline in optimism with the biggest falls seen by manufacturers in the South East & London and Wales, and the smallest by firms in the North East.

The annual report – Regional Manufacturing Outlook – draws upon survey data and the latest ONS figures to provide a longer-term picture of the health of UK manufacturing. It shows that UK manufacturers’ average confidence score just before the referendum (2016 q2) was 6.37 out of a possible ten points, but has slumped to 5.24 following the vote.

Despite suffering the largest fall, the South East & London still ranks top in the UK for business confidence, scoring 5.7 out of a possible ten points, while Yorkshire & Humber comes in second place (5.4 out of ten). At the opposite end of the table is the North West and the East Midlands, bringing up the rear with a score of 5 out of ten.

Manufacturers’ business confidence rankings by region:

Region 2016 Post-Brexit vote Ranking 2015 ranking Confidence score 2016 Q2 pre-referendum Confidence score post-referendum Change in confidence score
South East and London 1 (6) 7.3 5.7 -1.6
Yorks & Humber 2 (2) 6.4 5.4 -1.0
North East 3 (9) 5.8 5.3 -0.5
South West 4 (4) 6.2 5.2 -1.0
West Midlands 5 (1) 6.6 5.2 -1.3*
Wales 6 (8) 6.5 5.1 -1.4
Eastern 7 (3) 6.2 5.1 -1.1
North West 8 (5) 6.3 5.0 -1.2*
East Midlands 9 (7) 6.1 5.0 -1.1
UK average 6.37 5.24 -1.13

Source: EEF, the manufacturers’ organisation, and BDO LLP. Confidence scores are out of a possible ten points.

*Difference due to rounding.

In the North West, confidence may be suffering in part because a quarter of companies (25%) are unable to yet identify any business opportunities from Brexit - higher than any other region. More companies here too are concerned about weaker demand prospects (59%) and the attitude of their parent company following the referendum (28%) than elsewhere in the UK.

In contrast, manufacturers in Yorkshire and Humber see a handful of opportunities following the Brexit vote. They top the table for optimism about increased demand (25%), long-term certainty about the UK/EU relationship (21%) and lower regulatory burden (25%). And, despite seeing the steepest decline, manufacturers in the South East & London are on the whole more sanguine about the outcome of the vote than the majority of their peers, with 51% seeing the depreciation of Sterling as of benefit.

Ms Lee Hopley, Chief Economist at EEF, says: “The Brexit vote has put the manufacturing sector’s recovery in jeopardy. The growth path is now uncertain in all regions and, while firms in the South East & London and Wales look better placed to ride the storm, companies in the Eastern counties, North East and the South West appear more downbeat about their ability to cope.

“The referendum outcome has provided a jolt and it’s clear that there are fresh challenges ahead. Exchange rate volatility, political uncertainty and the danger of increased costs are already causing concern across the regions and business confidence is in short supply. But our sector is nothing if not dynamic, determined and resilient. UK manufacturing remains a force to be reckoned with.

“With a solid business environment, supportive policies and the right outcome from Brexit negotiations allowing for trade and ongoing access to skilled workers, manufacturers should be able to overcome the risks, reap future growth rewards and get their business confidence back on track.”

Tom Lawton, Partner and Head, BDO Manufacturing, says: “Following the Brexit vote last month, business confidence and optimism amongst UK manufacturers has dropped from an average score of 6.37 to 5.24 (out of ten). The impact on confidence was expected, but should not detract from the fact that UK manufacturing performance over the last 12 months has been strong with six (out of ten) regions seeing an increase in output.

“I firmly believe that UK manufacturers have the skills and adaptability to deal with the challenges ahead and am confident they will make the most of the opportunities that arise.

“The lack of a clear strategy for the manufacturing sector over recent years has been of huge concern and it is encouraging to see Theresa May’s promise of a proper industrial strategy. We would like to see the Government match manufacturers’ long-term outlook by developing a 15-20 year industrial policy that avoids the disruptions of the political cycle.”

As well as capturing confidence levels, the report also shows the positive contribution made by manufacturing around the UK in terms of employment, export success, output and productivity. The full report can be seen here.