Manufacturing 2018, part 3: productivity and investment

In the third and last of our three-part series looking at what 2018 might hold for the manufacturing industry, we’re now going to examine productivity. According to PwC, estimated 2018 manufacturing growth (1.3%) is broadly in line with GDP growth as a whole (1.4%). But how might this be affected by the UK’s well-documented productivity problems?

Is productivity starting to head upwards?

Surveys have indicated that despite relatively low UK productivity in recent years, we could be seeing the start of an upturn. In November 2017, the IMS Markit UK Manufacturing Purchasing Managers’ Index (PMI) said that “manufacturing production expanded at the fastest pace since September 2016”.

There are still pessimistic forecasts when it comes to productivity. The Guardian recently drew attention to regional productivity disparities between the South-East of England and the rest of the UK, for example. However, recently-released ONS statistics appeared to support the argument that after a poor few quarters, productivity is beginning to grow at a faster rate. This could be promising news for manufacturing businesses.

Encouraging investment

In our first blog post, we drew attention to the fact that a majority of companies intend to increase the amount invested in plants and machinery over the next two years. This is positive, and EEF’s data tells us that manufacturing businesses believe they have stronger order books than in previous years, too. Order book uncertainty as a reason for not investing has fallen from 2016, when around 40% of manufacturers cited order book uncertainty as a deterrent: in 2017, only 23% of respondents stated that they were put off from investing by this uncertainty.

It is also promising that according to EEF, only 13.5% of manufacturers are holding off on investment plans as a result of Brexit. Dealing with the UK’s exit from the EU could be crucial for productivity, according to McKinsey. We’ve seen over the course of this series of posts that the issues affecting manufacturers are in many ways dependent on each other, and it could be important for manufacturers to be on top of these complex issues as they develop through 2018.

Supporting ambitious UK manufacturers

It’s encouraging to see positive signs of economic performance as we move into the new year. We hope advances in output and productivity continue over the coming 12 months. At the same time, though, ambitious businesses can’t always execute their growth plans without an understanding finance partner.

Because we understand the challenges manufacturing businesses face, we created GrowthLine, a business finance product that gives you more flexibility when managing cash flow and working capital. GrowthLine works much like an overdraft: once we give you your facility limit, you can draw down funds and make repayments as often as you like. Find out more about how GrowthLine could help you execute your 2018 growth plans, or start your application now.

Head here to read the first instalment of our series on what 2018 might hold for the manufacturing industry, and here for our second piece, focusing on workforce and labour market trends.

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Written on in Business Insights