"The Engine", MHA's Manufacturing & Engineering Newsletter
After previously reviewing the combined impact of COVID and Brexit upon the manufacturing and engineering sectors, most recently in May, MHA returned to a short series of questions to track progress. Encouragingly, on reflecting on much of
what we had heard and seen in terms of “pent up” demand when we asked how long it would take entities to return to their trading level pre COVID we were told that 37% of respondents had either been unaffected or had now exceeded pre COVID business.
In our May report we noted that the projected recovery period had lengthened a little which we suspected was caused by a series of set backs from successive lockdowns but the latest set of responses has seen timescales shorten again with 23% now seeing a recovery in less than 6 months and 19% between 6 and 12 months compared to 24% and 34% respectively. These are, of
course, alongside those who have already exceeded pre COVID levels or have been unaffected meaning that 60% of business are or expect to be back to pre COVID levels shortly.
The recovery is underlined by our question regarding planned levels of investment within the next 12 months where 40% are now planning investment as planned and 27% slightly or significantly more whereas only 9% significantly less and 21% slightly less. We raised the query last time whether the announcement by the Chancellor for capital allowance super-deduction where businesses will be able to gain relief at 130% would make an impact in the area of investment and it would appear that this, alongside the levels of demand could be part of the explanation. We asked whether respondents had changed their product mix as a result of the pandemic. The answers remained pretty much unchanged with 55%, as opposed to 51%,
saying “no”. This, of course, can be interpreted from both directions as we noted in the last report and of the 45% who have changed then 29% have done so by a “little”, 9% by “quite a lot” and 6% “significantly”.
As the pandemic has evolved so has the response to it. Two such examples have been “social distancing” and the use of the NHS App which alerted you if you had been in contact with someone who had tested positive for COVID– a flurry of these led to the term the “pingdemic”. Therefore we asked “will you be continuing with social distancing measures within the workplace?” 68% said “no”. This should be considered in the light of responses to the
previous report which revealed that 51% had seen capacity affected “a little” by social distancing measures and 25% “quite a lot” or “significantly”. A new question for this report asked whether the “pingdemic” had affected business? 61% said “a little”, 20% “quite a lot” and 4% “significantly”.
In previous reports and working with our clients we have advised them to consider the robustness of their supply chain and this has again been highlighted with blockages in the Suez Canal, a shortage of delivery drivers alongside issues crossing the Channel. Responses to the question will you be changing your supply chain tend to underline that all is not right with 43% saying “a little” which was the same as the last report, but there has been a movement in the answers “quite a lot” 13% (previously 9%) and “significantly” 4% (previously 1%).
In our previous report we introduced two specific questions about the impact of Brexit; Have you had to change your business practices as a result of the Brexit agreement? The split of responses to this question has not really changed with 66% saying “yes” (67% the last report) and the most significant reason given here is “additional paperwork” which very much reflects the assistance that we have provided to our clients throughout this period. We also asked whether businesses had seen friction or obstacles as a result of the Brexit agreement when trading with the EU or with Northern Ireland? Of our respondents 61% (56%) said no. The last minute nature of the Brexit agreement certainly caused issues for businesses and more recent discussions to ease the path of goods across the Irish Sea highlights the challenges still faced requiring the Government and EU to find a way of easing the problem. Government “intervention” has necessarily been at unprecedented levels and 70% of our respondents said that this was either “enough” or “fantastic” with many making use of either the “furlough scheme” or Government backed loans. With the recent ending of “furlough” it remains to be seen what impact this might have. There have been suggestions that it will lead to increases in unemployment or a Government suggestion that those no longer required in one industry might be
able to retrain to fill demand elsewhere. With the perennial skill shortage within the sector alongside those previously employed within companies but who have left following the Brexit agreement any incentives that might ease this challenge would be welcome however it is clear that there needs to be a coordinated Government industrial policy to address longstanding issues within the sector.
The role of Government is highlighted by a new question which we added into this report. We asked if you could change one thing which would make your business life easier? Our respondents replied with a number saying “reverse Brexit” where they highlighted issues with freedom of movement of people and goods and that this was affecting their businesses in a number of ways whilst others highlighted supply chain issues and the rising
cost of goods. As we concluded in our last report it is evident that the pandemic and now Brexit have had a significant effect on the manufacturing and engineering sector. The ability of manufacturers and engineers to pivot has been much in evidence and the continued review and strengthening of supply chains is important and it is most encouraging to see the return to pre COVID levels and bulging order books, but there are many challenges affecting the sector and there is a real risk that the good work done could falter or worse be “undone” by the newer challenges within the supply chain or in terms of increased prices for vital services. Whether Government will be required to get
involved again remains to be seen but as has been proved many times the manufacturing sector is vital for the UK economy.