Data released by the International Monetary Market (IMM) and Forex (FX) has painted a promising picture for the future of UK manufacturing, with sterling rising as a result of the industry’s growth and despite ongoing Brexit uncertainty. Touch Financial discuss how these findings feed into a wider success story for manufacturing finance which has emerged this year.
What did the new data reveal?
Published after the early May bank holiday weekend, the data from IMM and FX found that GBP had increased against both the US dollar and the euro. This development came as a surprise to financial speculators at the time given its occurrence days after a reportedly unsuccessful EU summit involving Theresa May and Jean-Claude Juncker, prompting many to lower their bets against sterling. A key factor in the pound’s unexpected upsurge was thought to be the UK manufacturing industry, a sector whose growth – the data showed – had hit a three-year peak in April 2017. But while the IMM and FX revelations were arguably one of the more prominent showcases of the manufacturing sector thriving this year, by no means was this the first – or indeed last – example of such triumph.
A success story long in the making?
In fact, the signs of UK manufacturing holding strong and stable despite the government’s impending Brexit negotiations lying on the horizon can be traced to their origins as far back as late 2016, when manufacturing association Engineering Employers’ Federation (EEF) published their end-of-year fact card on UK manufacturing. The infographic showed that the sector currently contributes to 45% of UK exports, 68% of business R&D, 10% of the UK’s Gross Value Added for goods and services (GVA), and 14% of our business investment, as well as having risen from 10th to 9th place in the rankings of worldwide production.
EFF was hardly the only organisation to recognise this industry growth in late 2016 and early 2017 either. The Office for National Statistics (ONS) found that UK manufacturing’s output increased by 1.2% and its deficit fell by £5.6bn in October-December 2016. Meanwhile a report by accountancy firm BDO LLP earlier this year stated UK manufacturing confidence had hit a 20-month high, and a Markit PMI report published in February detailed how the British factory sector’s outputs had again reached a 32-month high in the previous month.
Recent months scarcely appear to have contradicted this industry trend. As well as May’s IMM and FX data suggesting that UK manufacturing finances were boosting sterling, EFF published their 2017 and 2018 growth forecasts that month, where the association claimed the sector would expand by 1.3% this year and a further 0.5% in 2018, outpacing original predictions of 1% and 0.1% respectively. Purchasing managers’ index (PMI) figures released at the time indicated that this expansion was already well underway, with the manufacturing industry’s growth exceeding expectations for May 2017.
As to the reasons behind these successes, EFF’s Charles Garfit has said: “Our most productive manufacturing subsectors – Food and Drink, Pharmaceuticals and Transport – are highly valued abroad, ‘made in UK’ conveys value and quality.” In addition, IHS Markit’s senior economist Rob Dobson believes that “robust output growth, rising new order inflows and job creation” all influenced what looked to be a strong Q1 2017 for the sector in spite of residual uncertainties surrounding the UK’s Brexit future.
Are there still challenges ahead for manufacturers?
However, it has been said that assumption is the mother of all mistakes, and thus at a time of shifting pound values, nationwide elections and ongoing Brexit negotiations, no business can truly afford to rest on its laurels today. Despite this recent aforementioned uptrend for UK manufacturing, industry analysts have pointed to areas which could cause those businesses operating in the sector discomfort in the months and years ahead. Dobson himself added that the question remains as to “whether increased cost inflationary pressure will act as a drag on manufacturing growth going forward”, and by no means has he been alone in such reservations.
For instance, the previously-discussed January 2017 Markit survey detailed how factory costs were also on the rise, reaching their highest level that month since the surveys were first conducted in 1992. What’s more, despite their largely positive end-of-year findings on the state of UK manufacturing last December, the ONS did point to potential issues still facing the sector, in particular the “volatile” nature of the pharmaceuticals sector upon which many manufacturers rely. UK economic expert Howard Archer added at the time that another “major concern” was imported goods, the price of which had risen by almost 10% between December 2015 and December 2016, and which he expected to rise a further 3% by late 2017.
What does this all mean for UK manufacturing’s future?
It seems based on recent developments that the UK manufacturing sector has plenty of room for optimism: industry growth is on the rise and apparently set to continue as such until at least 2018; the sector continues to contribute to a considerable deal of UK exports and goods / services value; and experts are registering the confidence of industry players at a record-breaking high. Even so, however, with the uncertainty of Brexit, increasing factory costs and a “volatile” pharmaceuticals sector not likely to subside anytime soon, there’s still undoubtedly room – and justification – for manufacturers to take reasonable caution as they continue or expand their enterprises going forward.
If you are looking to grow your own manufacturing business in the coming months but are concerned about where to find the necessary funds as you await payment from customers, then you might consider an invoice financing facility to release up to 100% of invoice funds as soon as they are raised. This could in turn provide the ideal opportunity to better your relationships with suppliers through the purchase of larger volumes of goods, or to cover costs like rent, payroll and machinery repair as soon as they arise. Be sure to visit our manufacturing finance page and find out how Touch Financial’s consultants can help you.