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Manufacturers Retain Optimism Despite Multiple Challenges

by Keerat

By Chris Barlow, Partner – MHA MacIntyre Hudson

 

Few will forget the year 2020. When we concluded our last report, we were six months past the first national lockdown, with manufacturing and engineering businesses trying to adapt as quickly as possible to the new situation.

The deadline for a deal on Brexit was also fast approaching with “no deal” a real possibility, leaving businesses faced with two significant issues to navigate.

Things have moved quickly, luckily a deal was agreed. Depending on where you sit, it may not be what was envisaged by “take back control”, with early 2021 seeing “teething problems” or “fundamental flaws” exposed, but a deal was reached.

The UK’s vaccine programme continues apace, and lockdown is beginning to ease. Against this backdrop we revisited the same six questions that were initially asked, to see if there were any changes in response, as well as adding two questions specifically on Brexit.

 

Firstly, we asked how long it would take to return to trading levels pre Covid?

The most recent set of answers has seen the timescales lengthen to between 6 and 12 months, and 12 and 24 months, now representing 66% of the survey population against 62% last time.

Each of those answers has, individually, increased 2%, with a fall being seen in the less than 6 month category from 28% to 24%, underlining the lengthening of the impact felt, and is, I suspect, coloured by the set-backs of successive lockdowns.

The longer impact felt from Covid as shown in our first question is also echoed in our question concerning investment plans for the next 12 months. Whilst the majority (75%) are planning to invest less (significantly or slightly) or the same as planned, this has fallen from 81% at our last asking.

Indicating that business will have to invest further to overcome the impact of Covid. The individual largest response remains unchanged at 31%, being that investment plans will proceed as planned, but 24%, as opposed to 19%, are looking to invest slightly or significantly more.

We asked whether respondents had changed their product mix as a result of the pandemic. The answers remained virtually unchanged with 51%, as opposed to 50%, saying “no”. Looking more deeply, of the 49% who have changed, 32% have done so by a “little”, 10% by “quite a lot” and 7% “significantly”.

 

Turning to the specific impact of Covid inside the workplace, and whether social distancing had affected production capacity, 51% in both this and our previous survey said “a little”. While those who have not been affected fell from 27% to 24%, and an increase from 9% to 18% of businesses being impacted “quite a lot”, again underlining the longer impact of Covid.

Regarding supply chains, we asked whether businesses would be changing their supply chain. Responses have seen a significant shift. In our last report 65% said “no” and 32% said “a little” this time only 45% said “no” and 43% said “a little” perhaps indicating that supply chains have not been as robust as was initially envisaged, or the impact of the Brexit deal has been seen more starkly.

The role of Government has been unprecedented, providing various types of state aid, and we asked how well manufacturing and engineering entities felt that they had been supported by Government during the pandemic. 46%, which is virtually the same as in our last set of responses, felt that the Government had done “enough”.

29%, as opposed to 27% felt that Government could “do more”, with some form of “rates relief” being mentioned in various comments. The change in responses has appeared at, perhaps the extremes of the answers with only 13%, as opposed to 21% feeling that the Government’s response has been “fantastic” and 10%, as opposed to 5% answering if they felt supported by the Government said “not at all”.

Turning to the Brexit questions we asked firstly, have you had to change your business practices as a result of the Brexit agreement.

Perhaps not surprisingly, the answer given was “yes” by 61% of respondents. Various comments highlighted the lateness of the deal, and little time to prepare, with none of HMRC, couriers or freight carriers knowing what was required.

As well as highlighting increased costs, whether that be completing paperwork declarations for which they could not charge, delays in materials being supplied and exports clearing the ports, as well as the costs of goods being diverted around the UK’s borders.

As a follow up to this we asked whether businesses had seen friction or obstacles as a result of the Brexit agreement when trading with the EU or with Northern Ireland. 56% said “no”. As we concluded in our last report it is evident that the pandemic coupled with Brexit have changed the sectors continued transition to a “new normal”.

The ability of the sector to survive such pressures is encouraging, and the potential impact of the Government’s levelling up agenda may well strengthen their recovery further, and it remains to be seen, what effects the continuing impact of Brexit will have. But it’s clear despite the fighting spirit that has been on display, as 2021 unfolds the challenges continue for this vital section of our economy.

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