UK manufacturing at risk as investment plans suffer further cuts

The manufacturing employers’ association EEF said the overall balance of capital investment intentions dropped to minus 8 per cent in the final quarter of last year

The biggest drag on the EEF investment index was the “basic metals” subsector, which includes steel plants (Getty)

Manufacturers have slashed back their investment plans still further in a trend that could threaten the long-term health of the sector if it carries on much longer, according to the latest survey by the EEF.

The manufacturing employers’ association said the overall balance of capital investment intentions dropped to minus 8 per cent, down from minus 3 per cent in the final quarter of last year. As recently as the first quarter of last year the reading was plus 15 per cent.

“High uncertainty about the outlook for global and domestic markets weighed on the confidence of manufacturers to invest” it said.

Lee Hopley, the EEF’s chief economist, said firms’ equipment replacement cycles would be coming to an end relatively soon, threatening an erosion of the manufacturing sector’s capital stock and damage to the competitiveness of the sector unless investment comes back on stream within the next 12 months.

“If it doesn’t pick up this year we’d be more than worried” said Lee Hopley of the EEF.

Other analysts have suggested that concerns over a possible “Brexit” following the June EU referendum are dampening firms’ desire to invest. Overall business investment fell by 2.1 per cent in the final quarter of last year according to the Office for National Statistics.

The biggest drag on the EEF investment index was the “basic metals” subsector, which includes steel plants. Intentions here slumped to minus 40, reflecting the global supply glut of steel and tumbling prices that have hammered plants, forcing a spate of shuttering and redundancies. But there was also pronounced weakness in the investment intention balances of the mechanicals (minus 13 per cent) and electricals (minus 18 per cent) sectors.

The latest ONS figures show that real investment in computer equipment and other machinery and equipment last year was £61.5bn, still shy of the level of spending before the 2008 recession struck.

The balance for manufacturers’ employment intentions also fell below zero in the final quarter of last year according to the EEF, the first time in five years both employment and capital expenditure balances have been negative.

However, the EEF did say that there were other “signs of stability” for manufacturers. The overall output balance of the survey edged up from its weakest point in six years in the final quarter of 2015, although it was still -0.5 per cent.

Manufacturing output according to the ONS is still lower than it was before the 2008-09 recession. The sector contracted by 0.2 per cent last year and the EEF is projecting an expansion this year of only 0.6 per cent.