How Is Brexit Affecting Manufacturing Sentiment?

As the Brexit impasse continues to bring Westminster to a standstill, the picture for manufacturing is not looking bright. Though order books remained strong, business optimism fell at the fastest pace since the 2008 financial crisis, while concerns about the ability to obtain export orders are at their highest since the 2016 EU referendum.

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Brexit uncertainty is affecting the manufacturing sector, says the CBI, while an ongoing reluctance to invest has coincided with a crisis in business confidence. Though output continues to grow, uncertainty continues to paralyse manufacturers, who need the certainty that they’ll be able to trade with only minor disruption in global markets.

A Mixed Picture

Although 11% of firms claim to be more optimistic about their situation compared to three months ago, 34% are less optimistic — the biggest drop since 2016. And while over a quarter of firms saw output rise, it was still at a net lower level than before December.

This mixed picture continues in the number of new orders, which saw a net increase of 3% at the end of 2018 with domestic orders unchanged at 0% and export orders actually rising slightly. Output growth is predicted to show a 14% growth over the next three months.

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A No-Deal Brexit?

There’s no doubt that the prospect of a no-deal Brexit and disruption to just-in-time supply lines is weighing heavily on British business. In this scenario a business that’s just invested in a new vacuum conveyor system from find themselves with no product to move. It’s the risk of this frightening scenario that makes it vital that Theresa May and her government find a way to end the deadlock.

Looking Ahead

However, with both domestic price inflation and export price inflation expected to rise by nearly 20% in the next quarter, the outlook is definitely unsettled as a result of the Brexit uncertainty. 60% of businesses expect that uncertainty to impact on sales orders and limit output, and planned investment in training, product innovation and infrastructure is at a standstill and expected to fall as business meets the challenges of 2019 on Brexit Day in March.

But it’s demand uncertainty that remains the big challenge to manufacturers, with 58% saying it would limit capital spending. According to the CBI, a no-deal would be a disaster for British business.