Manufacturers scale back plans for investment in wake of Covid

Cutbacks are now closing in on those seen in 2008 and 2009, signalling that companies are 'battling for lives', according to MakeUK and BDO

Manufacturers are slashing investment as they fight to survive the impact of coronavirus and growing Brexit worries, echoing the collapse seen in the wake of the great financial crisis.

Industrial companies’ spending plans dropped to a balance of minus 32pc in the third quarter, down from minus 26pc in the previous period, research from trade group MakeUK and BDO revealed.

Illustrating how investment is plunging, pre-Covid investment intentions in the sector, which makes up one-tenth of the economy, were running at 20pc in the first quarter of 2020.

Cutbacks are now closing in on those seen in 2008 and 2009, signalling that manufacturers are “battling for lives”, even though output for the quarter rose to minus 36pc from the historic low of minus 56pc in the preceding three months, when the economy was in effect turned off.

Tom Lawton, head of manufacturing at BDO, said: “While the industry has managed to claw back some lost ground from a dismal second quarter, the continued collapse in investment intentions is a real cause for concern.

“With a no-deal exit from the EU – and associated logistics, customs and cost implications – looking increasingly likely, British manufacturers will need to step up a gear in order to compete internationally, and this will require significant investment in productivity and digitalisation improvements.”

Stephen Phipson, MakeUK chief executive, said: “Manufacturing has begun to climb away from the abyss that it stared into earlier in the year. But make no mistake, it is going to be a long haul back towards normal trading conditions, with talk of a V-shaped recovery nothing more than fanciful.”

Among the findings were what MakeUK called the “shocking” performance by the basic metals sector, with minus 75pc in output due to low demand from the motor and aerospace sectors.

Sectors such as electronics, machinery and electrical equipment improved in line with UK averages.

Companies are also cutting back on staff, the survey found, with the employment reading slipping to minus 29pc in the quarter from minus 22pc.

Some 17.6pc of business said they were now at full operating levels and 28pc said they were running at between three-quarters and full capacity.

MakeUK is now forecasting that manufacturing output will fall by almost 10.9pc this year and downgraded its outlook for recovery in 2021 by more than a full percentage point from 6.2pc to 5.1pc.

GDP is forecast to fall by 8.5pc this year before recovering by 10.1pc in 2021.