Weak sterling unlikely to save UK manufacturing from recession

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Despite some support from a weak sterling, UK manufacturing faces recession until at least the end of 2017, manufacturers’ organisation EEF has said in its first report on the sector post Brexit.

While 53 per cent see weaker sterling as an opportunity, 32 per cent of firms have already seen input costs rise following the pound’s 10 per cent drop in the period following the UK’s decision to leave the European Union in its June referendum.

Seventy-five per cent are concerned about exchange rate volatility.

Chief executive Terry Scuoler describes GBP weakness as a “double-edged sword”.

“The post-referendum drop in the value of sterling has been helpful to some manufacturers, but the overall impact is too nuanced for it to be glibly hailed as the hero of the piece.

“All of our forecasts now point to our sector remaining in recession until at least the end of 2017.”

The research found 29 per cent of firms are bracing themselves for UK orders to decline, with 18 per cent admitting they will be reviewing UK recruitment and/or investment immediately.

Exchange rate volatility, political uncertainty and expectations of increased costs and weaker demand took business confidence to a two-year low.

However, only a small number of firms had seen demand drop in the period post Brexit, with 7 per cent seeing a drop in UK orders, 8 per cent seeing a drop in EU export orders, and 8 per cent seeing a drop in their enquiry pipeline.

Scuoler says: “Rather than an immediate storm, it is clear that manufacturers see the real risks from the referendum outcome presenting over the next six months to a year.”

He says “more than ever” the manufacturing industry needs the government to “keep a firm and steady hand on the tiller”.

“This means providing a stable business environment, scrapping burdensome policies and planned levies that add to our costs and reinstating a long-term national industrial strategy.”