The global downturn of the past 18 months has hit the manufacturing sector hard, yet there are encouraging signs of improvement and after a period of flat activity our customers are reporting a slight upward curve recently. Although interest rates are forecast to remain low throughout this year, we expect to see some growth in the UK economy, although this is likely to be moderate and constrained by ongoing readjustments.
It is still early days for the UK’s new coalition government and too soon to tell what major policies they will put in place that will impact the manufacturing sector over time. However, the Chancellor’s announcement that he intends to reduce corporation tax over five years and his confirmation that he is no longer planning to scrap research and development tax credits are welcome moves for manufacturers.
The potential payback however may come in the shape of a reduction in capital allowances.
The relative strength or weakness of Sterling is also an important issue for the UK’s manufacturing community. A weaker Pound is certainly beneficial for exporters, but the UK’s biggest trading partner is the European Union, and the Euro Zone is struggling, which may impact demand.
If the Euro drops it could also affect the competiveness of the Pound.
ROAD TO RECOVERY
As the recovery takes shape, manufacturers should also take into consideration their end markets. The downturn has seen most industries slow down to a certain extent, but some are picking up more quickly than others. Mining as well as oil and gas are faring well, while telecoms is an example of an industry still facing challenges. It is those manufacturers which are already focused on, or are able to shift a focus onto, more resilient sector or geographical end markets, that will be best placed to take advantage of emerging opportunities now and in the future.
In addition, those businesses in the sector led by strong and experienced management teams which have planned ahead for different contingencies and maintained open and frank conversations through tough times as well as good relationships with their key stakeholders – buyers, suppliers and financial partners – are now in a strong position to seize on new opportunities.
Companies which continually look closely at their business plans and are willing and able to adapt to changing markets and economic conditions will continue to lead the sector as we move into a period of growth.
At Lloyds TSB we’re committed to working hand in hand with these kinds of forward-thinking businesses, and providing them with the guidance and support they need to thrive.
Edited by Ian Armitage
