Rising costs and high levels of debt are among the challenges faced by manufacturing firms over the coming months, Make UK has warned.
In a survey by the industry body, almost half of companies (45%) said their debt levels are higher than at the start of 2020 and six in ten are planning to take on further debt.
Manufacturers are also having to contend with higher input costs, disrupted supply chains and mounting skills shortages.
As a result, for almost half of firms their cash position is worse now than at any point since the pandemic began and a third are worried about their viability in the next two years.
Make UK is urging the UK government to consider payment holidays for the loans that companies took out to get through the pandemic.
“Industry is facing the perfect storm with a raft of rapidly escalating costs combined with significant levels of debt which many companies took on as a precautionary measure just to stay afloat,” said James Brougham, senior economist at Make UK.
“Given the inflationary spiral shows every sign of continuing to climb, many companies fear a tipping point that could make their business models unviable.”
Businesses across the UK are still hampered by supply chain problems, energy price rises and staff shortages, and new figures show that output growth has fallen for the sixth month in a row.
In the latest Business Trends report from accountancy firm BDO, the Output Index decreased from 105.23 points in September to 103.35 in October. This figure provides a snapshot of output in the manufacturing and services sectors by weighting macroeconomic data from the UK’s main business surveys.
Declines were seen across both manufacturing and services, which fell to their lowest respective levels since March.
Manufacturing output growth, which has been hit hard by supply chain disruption, fell by 2.09 points to 97.03 in October — edging closer to the 95-mark which separates growth and decline. Output growth in the services sector dropped by 1.85 points to 104.15, with worker shortages the main driver behind the slowdown.
The termination of the furlough scheme at the end of September also caused BDO’s Employment Index to fall for the first time since January, when a further winter lockdown curtailed economic activity. The Employment Index fell by 1.13 points to 107.65 in October, although this dip is expected to be short-term as the economy continues to recover throughout 2022 and demand for workers grows.
Commenting on the October figures, BDO partner Kaley Crossthwaite said: “Businesses are facing an increasingly difficult winter. Between rising inflation and a lack of staff, 2022 could be a difficult year for companies who have been forced to to prioritise short-term problems over long-term growth. At the same time, consumers are beginning to see the impact of these shortages with rising fuel and energy prices, which may in turn lead to cutbacks in discretionary spending.
“In the final months of the year, businesses and consumers alike will be hoping that the economy can find some Christmas spirit over November and December and help take us into the new year on a high.”
Manufacturers have urged the UK Government to extend its Covid-19 furlough scheme, warning that the country risks being left in the “slow lane” behind major competitors in recovering from the pandemic.
Industry association Make UK wants to see the Coronavirus Job Retention Scheme continued beyond October for critical, strategic industrial sectors.
It highlighted the aerospace and automotive sectors as being particularly in need of an extension.
“These sectors are at the cutting edge of technologies which will be vital to growth sectors of the future employing many highly skilled, well paid people across the UK,” the organisation said.
“New analysis of official data by Make UK backs this up with the two sectors being the largest investors in research & development, accounting for more than two thirds of the total spend (36.4%). This is worth £5.9bn to the UK economy.”
Germany, Belgium, Australia and France have all extended or introduced new wage support schemes.
“The protection of key skills should be a strategic national priority as this will be the first building block in getting the economy up and running,” argued Stephen Phipson, chief executive of Make UK.
The industry group’s latest Manufacturing Monitor survey provides some signs of an improvement in business conditions.
Almost a fifth of the 226 companies surveyed between 24 August and 1 September are now at full operating levels (17.6%) while a further 28% are running at between three quarters and full capacity.
By the start of next year, over a quarter (27%) expect to be at full capacity and a further third (35.4%) expect to be between three quarters and full capacity.
The President of the CBI has warned that sections of the UK car industry face ‘extinction’ unless the UK remains in an EU customs union, according to BBC News.
Paul Dreschler said a ‘tidal wave of ideology’ was behind the government’s Brexit approach and that there is ‘zero evidence’ that trade deals outside the EU could bring an economic benefit to the UK.
Dreschler, who is shortly to leave his position, said: “If we do not have a customs union, there are sectors of manufacturing society in the UK which risk becoming extinct. Be in no doubt, that is the reality.”
The car industry was picked out as a particular example of a sector likely to suffer unless ‘real frictionless trade’ is maintained following Brexit.
Dreschler said that trade tariffs would cause increased costs and delays which could impact not only companies directly involved with imports and exports, but many others within the national supply chain.
We already know tens of millions, in fact hundreds of millions have been invested by UK pharmaceutical and finance companies to create continuity post a worse-case Brexit scenario. Tens of millions. What could we have done with that money?” Mr Dreschler said.
A government spokesperson said it was “focused on delivering a Brexit that works for the whole of the UK”.
A Markit survey has revealed that UK factories experienced growth in May for the first time in six months, but there are serious underlying weaknesses in the sector, according to Reuters.
The Markit/CIPS UK Manufacturing Purchasing Managers’ Index indicated that the British economy has not fully bounced back from a slight downturn in early 2018. Manufacturing accounts for around one tenth of total national output.
The Bank of England is currently considering whether to raise interest rates for the second time in a decade. The flatlining economy between January and March 2018 may be a short term phenomenon caused by unseasonably cold weather, or it could be a more lasting situation related to Brexit concerns.
Rob Dobson, Markit director said: “At first glance, the mild acceleration in the rate of output growth and rise in the headline PMI would appear positive. However, scratch beneath the surface and the rebound in the PMI from April’s 17-month low is far from convincing.”
Incoming business has hit an 11-month low, while job creation is the lowest in 15 months. This is said to be due to a loss of spending power caused by growing inflation, in turn caused by the fall in the value of the pound following the Brexit referendum.
Jaguar Land Rover has announced that the contracts of 1,000 temporary workers in the UK will not be renewed, according to BBC News.
The auto giant has cited ‘continuing headwinds’ impacting the car industry for the decision. The jobs will be lost from the Solihull and Castle Bromwich factory sites.
Jaguar Land Rover (JLR) said recruitment of apprentices and engineers in the UK would continue and that it remained committed to its UK plants. Earlier in 2018 JLR cut production at the Halewood, Merseyside plant, citing Brexit uncertainty and the dwindling market for diesel cars.
JLR employs 40,000 people in the UK, with 10,000 of the workforce based at Solihull. The firm’s Jaguar sales are down 26% so far in 2018 compared to 2017, while Land Rover sales have dropped 20%.
In the overall UK car market, diesel registrations have dropped by around one third in a year. JLR acknowledged that the current market is ‘tough.’
Peugeot has unveiled plans to build its new van model at its British Vauxhall plant in Luton, according to Reuters.
Peugeot’s owner PSA’s announcement will be seen as a gesture of confidence in the UK economy pre-Brexit, and it increases pressure on the manufacturer’s sister brand Opel, based in Germany, to offer concessions in labour talks.
PSA purchased Peugeot/Vauxhall in 2016 from General Motors. The business will build new Peugeot and Citroen models in Luton as well as the next Vauxhall van, the Vivaro. Production is set to rise from 60,000 in 2017 to 100,000 vehicles.
French company PSA is currently in talks with Opel’s German workforce. The firm said the Luton investment was assisted by ‘responsible social dialogue with the Unite union guaranteeing production flexibility’ as well as support from the UK government.
The move will create around 350-400 jobs, adding around 100m Euros to the economy. Luton is currently the UK’s only van plant, employing around 1,400 people.
PSA head Carlos Tavares said: “I take on board the assurances that the UK government have provided us on seeking tariff-free and frictionless trade with the EU going forward. There is still work to do to ensure frictionless trade.”
The move adds to pressure on Germany’s IG Metall Union, as deals have now been struck with workers in the UK, Spain, Austria, Hungary and Poland. PSA has said van production had to be increased to meet growing demand but a decision about the future of the Ellesmere Port factory, where the Astra Sports model is made, will be put off until 2020 or beyond.
Carmaker Toyota has announced it will build its new Auris hatchback at the Burnaston factory in Derbyshire, according to BBC News.
The Japanese automotive company said the next generation Auris would also have engines primarily sourced from its Deeside plant in North Wales. The news comes following a £240m investment plan for the Burnaston facility in 2017.
Toyota said the announcement would secure more than 3,000 jobs at Burnaston and Deeside. There had been concerns that Brexit could lead to carmarkers moving production abroad if trade barriers threatened their ability to compete internationally.
Car companies have warned that tariffs on exports could disrupt the international supply chain involved in car manufacture. The Society of Motor Manufacturers said that investment in the sector fell by one third in 2017 within the UK, due to Brexit uncertainty.
Despite this anxiety, several car makers have pledged to build more cars in the UK since the Brexit vote, including Nissan’s plans to build the next generation Qashqai and X-Trail SUV in Sunderland, and BMW deciding to assemble the new electric Mini in Oxford.
The UK government has pledged £20m in the Burnaston plant alongside Toyota’s commitment.
Dr John van Zyl, president of Toyota Europe, said: “As a company, we are doing what we can to secure the competitiveness of our UK operations as a leading manufacturing centre for our European business. With around 85% of our UK vehicle production exported to European markets, continued free and frictionless trade between the UK and Europe will be vital for future success.”
Norwegian aluminium company Sapa has announced plans to invest £9.6m in an automotive plant in Caerphilly, Wales in order to produce a new generation of eco-friendly London black cabs.
The new plant will create more than 130 jobs in Bedwas, South Wales on a site which was mothballed by Sapa in 2014 due to tough market conditions and over capacity, according to the Guardian. The plant was previously used for aluminium extrusion but will be refurbished for the change of purpose.
The move comes as manufacturing confidence is faltering due to uncertainty over Brexit. Financial backing of £550,000 from the Welsh government was given as the reason why Bedwas was chosen over another of Sapa’s European sites.
The new factory will be producing cabs for the London Electric Vehicle Company, which is developing a zero-emissions taxi ahead of moves to ban diesel and petrol cars and vans in the UK from 2040. London is already subject to a congestion charge and Low-Emission Zone.
Production will commence at the plant from late 2017, using materials sourced from Spain. Output will increase steadily over the next five years.
Welsh First Minister Carwyn Jones said: “The opening will create a range of new job opportunities and give a new lease of life to the area.”
Japanese car manufacturer Nissan Motor Co Ltd is to make an investment of GBP100m in its Sunderland plant, securing at total of 34,000 jobs in both manufacturing and the supply chain into the next decade, it was reported on Thursday.
The announcement indicates that confidence in the UK’s car industry has increased. The Sunderland plant reportedly produced over 500,000 cars in 2014, which makes it the biggest car plant in the UK. The factory, which employs 6,700 people, is said to make more cars than the whole of the Italian car industry. Figures from the Society of Motor Manufacturers and Traders, reportedly show that UK car production in the first half of the year reached a seven-year high of 793,642 cars, which equates to three cars being produced every minute.
Nissan will produce a new version of its successful Juke small so-called crossover model at the Sunderland factory, where it already manufactures the Qashqai, Note and the electric Leaf models. The plant is also geared up to begin production for the company’s premium Infiniti brand
According to reports, Nissan’s European design team in Paddington, London, and European Engineering Headquarters in Cranfield, Bedfordshire, will be instrumental in the development of the new model.
Chancellor George Osborne was quoted as saying that the announcement was “fantastic news”, adding: ” Our ambitious plan to build the Northern Powerhouse means building on the area’s strengths – including manufacturing – and this announcement is an important sign of Britain being chosen as a global leader in car production.”
Tony Burke, assistant general secretary at Unite union, was quoted as saying: “We warmly welcome the decision of Nissan to build the new Juke model in the UK, when it could have gone to one of Nissan’s plants abroad.
“The decision demonstrates the confidence the industry has in a highly skilled and dedicated workforce across the UK automotive industry.”