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Manufacturing gathered pace in September

Manufacturing grew in September, according to the latest statistics from the Office of National Statistics. The pharmaceutical sector showed a strong performance, but the gas and oil sectors unperformed, causing an 0.4 per cent drop in total industrial production, the BBC reports.

Moreover, there were further challenges for the manufacturing sector in September in the form of inflation, leading to a rise in prices for materials and the cost of fuels.  Manufacturers have also had to contend with the low value of the pound, which has made imports more expensive, but sterling is now on the rise.

Manufacturers adjusting spending plans

The immediate aftermath of the Brexit vote has not had the impact on the manufacturing sector that many had feared. However, manufacturers are adjusting their investment plans following the referendum result, according to research from the EEF.

The EEF/Santander Monitor 2016 report indicates that manufacturing firms will slow down their investment into capital equipment for the near future. 60 per cent of the manufacturers surveyed stated they will be spending either the same or less on equipment in the next two years.

Lee Hopley, Chief Economist at the EEF said:                    

“Fears of an immediate collapse in business investment appear to be unfounded for now. UK manufacturers have been investing at a healthy pace in recent years and while that rate of increase wasn’t going to continue forever, keeping up with customer needs and the competition is ensuring that investment stays on track for many.

EEF attribute this slowdown in spending to order book uncertainty. In addition, some manufacturers are already faced with ‘soft demand’, with a third of manufactures already having spare capacity, meaning they are reluctant to invest in equipment that could go under used.

The EEF also stressed the need for policies that would assist the manufacturing industry. Ms Hopley stated:

“…It’s over to the Autumn statement now to press ahead with policies that further enhance the UK business environment for spending on modern machinery and increasingly important intangible investment.”

Change in investment strategy

Manufacturers are also changing the way they invest. EEF say manufacturers would rather invest in innovation to help them stand out from the competition, allowing them to enhance productivity and to improve future demand for their products. 60 per cent of manufacturers say that investing in ‘intangibles’ rather than equipment is now more important to their businesses.

Despite the concerns prior to the referendum, the report shows that Brexit has had little impact on the manufacturing sector’s plans for future investment. There is also more optimism over exports due the fall in the value of pound.

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