Key challenges for UK manufacturing in 2020

It’s fair to say the manufacturing in the UK has had its share of ups and downs. In November 2019, reports indicated the sharpest drop in activity in three years. The Composite Purchasing Mangers’ Index, which covers the UK services and manufacturing sectors, fell to 48.5 from 50 in October 2019, with 50 being the threshold that shows a contraction. While not definitive, these figures suggest that the UK economy is likely to shrink in Q4 2019.

2020 then, is starting from a difficult position for the manufacturing industry. It will have to find a way to stimulate new activity and there will be pressure on the Bank of England to cut interest rates in the new year.

General Election 2019

This challenge is likely to be compounded by two major political events in the upcoming months. The impending General Election will inevitably have its impact on the industry, and is a contributor to the overall uncertainty.

Labour is pushing for a Green Industrial Revolution, one that focuses on balancing domestic productivity with lower emissions, promising extra investment. It predicts that its plans would create at least one million well-paid, unionised jobs, trained with the skills they need to promote innovation, and make it easier to spend the Apprenticeship Levy.

The Conservatives continue to pledge to put businesses at the heart of a successful economy, with lower taxes and better infrastructure. With Brexit its headline policy, it also extols the virtues of better trade deals globally. It aims to put an end to the Brexit uncertainty that is underpinning many challenges in the manufacturing sector.

Whichever way the General Election goes, there will likely be a period of transition before the manufacturing industry settles, and this is one challenge to overcome in the next 12 months.

Ongoing Brexit

The biggest reason given for the current shrink in manufacturing activity is, inevitably, Brexit itself. Companies stockpiling in anticipation has now led to a reduction in orders as we all await the outcome. Investors are still wary of UK business, so it remains to be seen what new challenges await the manufacturing sector post-Brexit.

A secure deal with the EU may alleviate some fears, though there are no assurances as yet that this will happen. There is also the possibility of further extensions to the 31st January 2020 deadline – much of which also rides on the outcome of the General Election – which will extend the challenges facing the sector further into the year.

In an article for City A.M, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, says: ““The manufacturing sector is showing no sign yet of pulling out of its recent downturn,” he said. “With the Conservatives’ Brexit vision turning increasingly ‘hard’ under [Prime Minister Boris] Johnson’s stewardship, a renewed long-term structural decline in the UK’s manufacturing sector potentially lies in store.”