EIA survey - Brexit uncertainty still a factor as business confidence remains the same
19 March 2018
Sir Ronald Halstead, President of the Engineering Industries Association (EIA), attended the Bank of England meeting on 6 March 2018 to represent the feelings and business confidence of the UK’s engineering industry, as expressed in their latest industry survey.
With continued uncertainty around Brexit, business confidence remains at around the same level as when it was when it was last recorded in September. The uncertainty is affecting business’ ability to plan and invest, but the weakened pound continues to help exports.
47.37% said that overall business confidence was about the same as in September, but promisingly, only 15.79% said it was lower. This was mirrored by responses to a question on expected growth.
63.16% expected export demand to grow but many companies are reporting concern about skills shortages. 58% responded with either a 4 or 5 out of 5 to a question rating concern about skills shortages.
Companies voiced fears about the effect of Brexit on their ability to do trade in Europe but overall export optimism is being aided by increased demand beyond the EU following the weakening of the pound.
At the last Bank of England meeting Sir Ronald Halstead mentioned issues regarding delays on agreeing DIT’s TAP programme. This has since been resolved.
The survey also reported that SMEs are trying to live within their cash flows rather than borrow from the 5 big banks. Alternative lenders are also becoming more popular.
One respondent said:
“From my experience the top 5 Clearers have increasingly limited appetite for traditional trade finance for SMEs with turnover sub £5m. As a result the alternative lenders have become the go-to funders. However, transaction costs are higher and seriously cut into net profit.”
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Further respondent comments:
Variations in currency causing issues
"It’s quite challenging at the moment with so much uncertainty ref. Brexit. Companies seem to fall into 2 camps – those that are ultra-cautious and have any progress plans on hold and those who are carrying on regardless. For us, we try to carry on regardless and we’ll deal with what comes when we know about it. The weak pound is helping export a little but challenging for some imported commodities that we sell. In general, a weak or strong currency doesn’t particularly give concern – it’s variations in currency that cause most issues."
Additional costs to be passed to consumers
"Business in the next 6 months is expected to remain buoyant, but similar to the previous six months. The bump experienced in input costs due to exchange rate is past and we are now able to cost our jobs at the new level. Wages for skilled personnel had to be increased significantly above inflation rate over past six months in order to retain staff, in light of a buoyant economy. Also workplace pension costs kicked in for our Company last year. We expect to pass these additional costs on to our customers, especially export customers as the exchange rate changes of a few years back has compensated for it."
Global growth more important than Brexit
"Costs will rise because of £sterling depreciation. We are an export business in the main sterling depreciation is generally helpful for us under these circumstances. Is the imposition of the living wage likely to be a problem for SMEs in engineering? – No. And certainly not as much as the issue with not being able to find good qualified people due to the uncertainties due to Brexit. Is Brexit and these other factors affecting our business confidence? - Makes no difference to an Entrepreneurial company at the moment. Global growth or slowdown does make a difference. The Oil price makes a difference in our market."
Banks not doing enough to support SMEs
"Our bank has demanded a personal guarantee from the directors in order to provide an overdraft. No value is attached to our debtor's book from their end. As a matter of principle we will never provide a personal guarantee in order to run a limited liability company. We are therefore left without an overdraft and having to temper our growth plans as a consequence. We have sounded out competing banks and get the same response regarding the requirement for a personal guarantee. We feel, the banks are punishing the SMEs for being small. We will welcome intervention from the regulators prompted by the political system in this matter."