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Against the odds: The future of UK manufacturing
Against the odds: The future of UK manufacturing
Investing for growth
Economic uncertainty
Much has been made of expensive initiatives in the US and Europe to hand manufacturers various grants, incentives and tax breaks to support the transition to green technologies. That stands in contrast to the UK, where investment has stalled in the face of ongoing economic uncertainty. So, it’s reassuring to learn that four in five (81%) of the manufacturers we surveyed are planning to invest at least the same if not more than they did last year, with only 13% planning to invest less and just one in 20 not planning to invest at all (5%). Regionally, the North West was most at risk of stagnation, with a quarter (25%) of firms planning to reduce investment. The region is home to a high concentration of aerospace manufacturers, which have struggled with supply chain disruption more than most. Our survey found that those stopping or reducing investment are primarily doing so to conserve resources amid uncertainty (52%) – although just under a third (30%) said that borrowing has become too expensive in light of increases to the Bank of England base rate.
We believe that banks continue to be supportive and accommodating in respect of the funding positions they already hold with manufacturers, which is positive, as the same can’t be said for every business sector at the moment. But advancing new and additional finance is becoming increasingly difficult – weak balance sheets and debt service capacity will mean that for many, equity is the answer. The lender view is that the geopolitical events of the last few years have contributed to a lack of security, with balance sheets already entirely geared up. Indeed, they are increasingly focused on the future ability of manufacturers to meet their terms, so future cash flows are coming under the microscope. We’re also seeing scenarios where a prolonged lack of investment is coming home to roost. For example, significant production outages – linked to antiquated equipment – are contributing to targets being missed while requiring substantial and unplanned capital expenditure to remedy. Investors intentions Of course, there remains a healthy proportion of the market keen to invest in growth. Indeed, the top priority for those planning to invest in the next year is increasing output and/or productivity through automation and AI (23%), which speaks strongly of manufacturers’ innovative and entrepreneurial outlook. Firms will also be creating new jobs (22%) – which seems to contradict the theory that AI and automation are a threat to workers – expanding existing production capacity and delivering further training and upskilling for team members (both 21%).
Which financial initiatives will support manufacturers - and at what cost?
Finding funding
The most popular route for businesses to fund their investments is through existing cashflow or facilities (41%), but there is also a significant cohort who will be going to market to source funding. Almost a third (31%) plan on securing new facilities from existing lenders, while a similar proportion (30%) will seek to extend facilities with their existing lenders. Similar numbers also plan to find new lenders (30%) and new equity investors (30%), highlighting a well-balanced market.
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