The UK manufacturing industry is suffering from a bad end to the year. Industry body EEF, Lloyds Bank, and the Bank of England, are all expressing doubts over its future.
Several reports point to a fall in growth for this year, which will grow to a much higher figure by the end of 2016. According to the BBC, EEF has cut its forecast to fall 0.1% for 2015 and are expecting only a 0.8% rise next year. That figure is far smaller than previous estimates.
It’s big news when you consider that the UK’s manufacturing industry provides 10% of the output of the economy. There are several core reasons for the drop in expectations – which we’ll take a look at now.
The Chinese slowdown has been big news for the last twelve months or so, and given it is such a big part of the UK export market; it is worrying times. And not just for the UK, either. The economic disruption in China could cause many financial issues on a global scale.
The car industry, reduction of oil prices, and slower growth around the world are all having an effect. And, although the Chinese economy is the biggest issue, there is also a large reduction of orders for UK goods arriving from mainland Europe.
The Strong Pound
Another issue is that low-interest rates continue to bolster the value of the pound. During 2015, the UK currency has risen almost 20% against the euro. It’s clear that all companies in Europe will find it hard to justify high prices to their customers. And, of course, they will look elsewhere for cheaper alternatives.
With the sterling set to rise even more during 2016, it poses the Bank of England a large problem they need to fix. Do they raise interest rates and risk causing havoc with the mortgage market? Or, do they hope for the best that UK manufacturers will be able to get enough sales from domestic customers?
Another major issue is the problems being faced by big industries such as oil and steel. Cheaper alternatives from around the world are replacing what used to be a key industrial resource for the UK.
The oil industry is in troubled times, too. In the past 18 months, the price of a barrel of oil has fallen by almost 60%. This means that the North Sea oil industry has scaled back operations by a considerable amount. There have been plenty of layoffs at oil firms in Aberdeen – which will bite into next year’s tax receipts for the government.
There is more positive news, however, to do with another great British export. A couple of Speyside whisky makers will start work on expanding their distillery thanks to a £100 million investment. The money will be used to pay for new distilling devices, tun rooms, warehouse shelving, and other equipment. The global hunger for a nice drop of Scotch is clearly not abating for the moment.
There is even better news after the FTSE rose 30.9 points to 6269.19. So, at least traders continued to be buoyant, despite all the worries about the manufacturing industry.
Do you work in the UK manufacturing industry? If so, has the economic slowdown in China had any effect on you? And how are you planning to deal with your business performance in 2016? Let us know your thoughts in the comments section below.