Sector Specialists At Irwin Mitchell Say Future For Firms Remains Uncertain

The latest British Chambers of Commerce (BCC) survey, which has been published today, shows that manufacturers are reporting solid growth and experiencing increases in both domestic and export sales.

The BCC’s Quarterly Economic Survey is based on the responses of over 7,300 businesses in Q1 2017.

The comprehensive study shows the manufacturing sector performed strongly in the first quarter of the year, particularly in the exports market where the number of firms reporting improved sales and orders was higher than in previous quarters.

It added, however, that rising cost of overheads and raw materials are presenting a risk to growth in the medium term.

Key findings in the Q1 2017 survey include that the percentage balance of manufacturing firms expecting the price of their goods to increase over the next three months remains at historic highs.

Three quarters (76%) of manufacturers reported an increase in the price of raw materials (up from 65%), while 38% of manufacturers report an increase in the cost of other overheads - up from 23%.

The balance for firms in the manufacturing sector reporting increased domestic sales rose from +15% to +20%, and orders rose from +7% to +16%. The balance of firms reporting improved export sales rose and the balance of export orders also increased.

The survey found that manufacturers were more confident that turnover would improve over the next 12 months and more firms also thought their profitability would increase.

Suren Thiru, Head of Economics at the BCC, said: “Our latest survey suggests that the UK economy put in a solid performance in the first quarter of the year, with businesses remaining resilient.

“Manufacturers’ export sales are at their highest levels in recent years, with the decline in Sterling and an improving outlook for the global economy helping a number of firms who export. However, if the sector is to sustain this growth in the long-term, there must be action on the difficulties facing it, including chronic underinvestment in the UK’s infrastructure and shortages in the labour market.

“Inflation is a key risk to the UK’s growth prospects, with businesses having to manage rising costs and the pressure to raise their prices. If higher inflation squeezes consumer spending as we expect, the current strength in business activity may not be enough to prevent a period of more muted economic growth.”

Dorrien Peters, partner and manufacturing sector specialist at Irwin Mitchell, said:

Expert Opinion

“There are some pleasing results from this latest survey and it is encouraging that many firms in the manufacturing sector have continued to grow despite market uncertainty caused by the referendum result last year.

“Whilst growth may be set to improve, economic pressures on the sector in relation to inflation, employment costs and difficulties in recruitment, along with the import costs of raw materials, means that the longer term position of the sector is far from certain.”
Dorrien Peters - Partner