Government support, export opportunities and growth sectors like the automotive industry provide “rays of hope” for the manufacturing sector, according to a Midland-based expert.
However, the ongoing flow of bad news from key economies and markets and the lack of access to capital will make 2012 a very difficult year for the majority of West Midlands’ manufacturers.
Tom Lawton, Birmingham based partner and head of manufacturing at BDO, said: “After 30 years of decline there is now widespread consensus that a strong and vibrant manufacturing sector is fundamental to the UK economy. The task of rebuilding the manufacturing sector will not be easy and we must accept that it may take years. However, a renewed focus on manufacturing is vital for growth.
“In 2012 we expect that the Government will continue to focus attention on the rebuilding of manufacturing. But in order to emphasise the importance of this sector to economic recovery and to enable long term sustained growth the Government must develop a clearer and more explicit medium to long-term framework and strategy for the sector.”
Mr Lawton’s expectations for the UK manufacturing sector include:
1) Slowed growth
BDO expects that the combination of a continued reduction in demand from the UK’s largest markets, as they battle through political and economic turmoil, and a lack of access to capital will make 2012 a very challenging year for most manufacturers.
Despite good intentions by banks and the Government, the huge pressures on sovereign debt, bank debt and bank balance sheets will continue to make access to growth capital very difficult, particularly for SMEs.
2011 was a relatively good year for manufacturing but the latest UK and global PMI indices are showing a significant deterioration in confidence in the manufacturing sector.
Manufacturers will need to keep a very careful watch on cash flow, working capital and funding facilities in the 2012 financial year.
2) Investment and recruitment unlikely, particularly by SMEs
The balance of West Midlands’ firms taking on new workers is expected to fall, from a high of 21 said in the fourth quarter of 2011 to just nine in the first quarter of 2012. BDO expects to see little positive recruitment throughout 2012 and anticipates that manufacturers in certain sectors may be forced to shed labour to balance the books in 2012.
While some larger companies such as Caterpillar, JCB and Michelin will continue to invest in R&D in 2012, smaller firms will need reassurance to invest. A recent CBI survey showed that SME firms were planning to cut spending on plant and equipment next year and the number planning to merely invest in replacing existing capital in 2012 was at the highest level (58 per cent) since the survey began in 1988.
