Manufacturing confidence suffers sharpest drop in two years

By Anita Jaynes on 9 June, 2015

Manufacturing firms reported the biggest decline in optimism this month since March 2013, according to the latest Business Trends Report by Bristol-based accountants and business advisers BDO LLP.

Exporters have been particularly hard-hit as the continued slow performance of the Eurozone hits overseas markets and the strong pound makes British goods more expensive. Added to this, low oil and gas prices have curbed investment by the sector and slowed orders for manufacturing firms in the region.

The four point drop in BDO’s Manufacturing Optimism Index means it currently stands at 103.4. Whilst this is still above the long term average, this is only due to the sector’s weak performance since the financial crisis.

This means the dual speed recovery looks set to continue. The drop in manufacturing confidence is in stark contrast to BDO’s Optimism and Output Indices, which predict overall business growth for the latter part of 2015. These held firm this month with each holding a reading of 104.5, pointing to strong confidence among most firms.

The manufacturing sector is still smaller than it was in 2008 so prospects for manufacturers need to be boosted to rebalance growth across the economy as a whole.

Commenting on the findings, Andrea Bishop, audit partner and head of BDO LLP in Bristol, said: “The Government’s plans to rebalance the economy are vital, but it is equally vital that the manufacturing sector reaps the benefits from these plans and receives the help it needs to thrive. In particular, we need to see the regional powerhouse plans translate into real support for the manufacturing sector.

“Additionally, we would like to see a formal target set for manufacturing’s share of GDP, which will provide the foundations for sustainable industry policy. This could be steered by a dedicated Manufacturing Minister – another option we would like to see considered by the Government.

“Manufacturing is a key sector for economic growth, so specific support could help boost the economy as a whole. A measure such as a reducing National Insurance for manufacturers taking on new employees could create up to 1,839 new jobs in Wales, boosting GDP by over £73m each year.”

Overview of the BDO indices:

An overview of all four indices is provided in the table below, detailing figures for the last three months and the same month of the previous year, to allow for comparison.

  May 2015

(figures for this report)

April 2015 March 2015 May 2014

(equivalent report last year)

BDO Optimism Index 104.5 104.7 104.9 104.4
BDO Output Index 104.5 104.3 103.7 103.3
BDO Inflation Index 94.2 93.8 93.8 98.0
BDO Employment Index 111.3 112.0 113.0 107.7

Pictured above: Andrea Bishop, audit partner and head of BDO LLP in Bristol