South: EEF expects Brexit risks to materialise over next half year

New research from EEF, the manufacturers’ organisation, suggests that the Brexit vote has had no immediate impact on trading conditions for the sector, but confidence has taken a tumble and companies expect trading conditions over the next six months to weaken.

As yet, following the referendum vote, only a few firms report decreases in UK order volumes (7%), in EU export-order volumes (8%) and in their enquiry pipeline (8%), and most say their order intake is unchanged or that it’s too soon to say. Conversely, 2% have seen non-EU exports increase.  But the biggest concern appears to be demand from UK customers with 29% of firms bracing themselves for UK orders to decline in the next six months.  Some see EU orders as also at risk, with a balance of 12% of companies predicting a decline, but this is exactly matched by those expecting non-EU orders to increase.

53% of firms identify weaker sterling as an opportunity, but 75% of firms are concerned about exchange-rate volatility. 32% have already seen input costs rise as a result, and over half (51%) expect this to be the case over the next six months.

58% of firms will be reviewing their UK recruitment and 57% will be reviewing UK investment – 18% admit they will be hitting the review button immediately.

EEF’s forecasts show that, following the vote to Brexit, whatever scenario develops, the sector will remain in recession until at least the end of 2017.

Jim Davison, South-East region director at EEF, said: “The post-referendum drop in the value of sterling has been helpful to some manufacturers, but the overall impact is too nuanced for it to be glibly hailed as the hero of the piece. The opportunities it presents must be weighed against the fact that three-quarters of manufacturers see exchange-rate volatility as a key risk in the next 12 months.  In the next six months, over half of manufacturers expect input prices to increase and that probably tells you everything about why the drop in sterling is a double-edged sword.”

He added: “More than ever, we need government to keep a firm and steady hand on the tiller. This means providing a stable business environment, scrapping burdensome policies and planned levies that add to our costs and reinstating a long-term national industrial strategy.”