How will South West manufacturers weather ‘perfect storm’ of Brexit and Covid-19 uncertainty? – Business Live

With Brexit kicking in on January 1, deals being seemingly renegaded on and of course the uncertainties surrounding Covid-19 and a possible recession looming, it does not look great for the regions manufacturers.

According to Make UK/BDO Manufacturing Outlook Q3 survey, investment intentions fell by a balance of -31% in the last quarter of the year.

The average SME in South West has lost 38% of their income as a result of Covid-19. Many SMEs in Devon and Cornwall are reporting significant losses due to Covid-19, with 32% seeing a decrease of more than 70% of their income. Meanwhile 14% of SMEs in the region have said the health of their business has already been damaged long-term.

While not reaching the levels of cutbacks seen during the financial crisis as yet, the trend downwards is following a similar pattern to that seen at the time and reflects the difficult picture for the aerospace sector in particular which accounts for a fifth of regional output.

Looking forward, given the impact on the sector, Make UK is now forecasting that manufacturing output will fall by almost 11% (10.9%) this year while it has downgraded its forecast for recovery in 2021 by more than a full percentage point from 6.2% to 5.1%. GDP is forecast to fall by -8.5% this year before recovering by +10.1% in 2021.

However, the national manufacturers body has warned that given the uncertainty surrounding the Brexit negotiations and the very real possibility of no deal, the combination of that outcome with the continued impact of the pandemic could cause further damage to investment prospects in the latter part of the year.

Jim Davison, region director for Make UK in the South West, said: Manufacturing has begun to climb away from the abyss that it stared into earlier in the year. But, make no mistake it is going to be a long haul back towards normal trading conditions, with talk of a V shaped recovery nothing more than fanciful.

Having emerged from three years of political uncertainty at the end of last year, increasing talk of a final no deal exit from the EU would be a final nail in the coffin for many companies.

If we are to avoid this and, the avalanche of job losses that would follow in already hard hit areas and sectors, it is essential that the first step towards a fuller recovery is provided by a comprehensive trade agreement with the EU.

Businesses however have welcomed the announcement by the Chancellor Rishi Sunak in his Winter Economy Plan at the end of September, which aims to find an alternative to the furlough scheme that was due to come and an end in October.

The new Job Support Scheme, starting in November, will mean the government will pay part of workers' wages who have lost hours while a VAT cut to 5% will remain in place until next Easter, a

The cut in VAT to 5% for the hospitality and tourism sector will be extended until 31 March and that too has been welcome to promote demand and help business rebuild their cash reserves through the tough winter months.

Kim Conchie, chief executive of Cornwall Chamber of Commerce, said the future ways to doing business will suit Cornwall better than the old 20th century model and while we are going through tough times now, there is hope for future growth too.

Eric Nicholls, the chairman of the Cornwall Manufacturing Group, said it has been a mixed picture for its members with manufacturers supplying the aeronautic and automotive industries suffering the most when those supplying the health and hospital sectors working flat out.

He said 80% of the members had made use of the furlough scheme and would do so again if it is proposed in another form by the Chancellor of the Exchequer.

However he admitted that it had been tough and 60% of members had made redundancies with one in 10 jobs lost in the sector in Cornwall since the start of pandemic.

Mr Nicholls said: It has been a challenging year but not as bad as some sectors like tourism, leisure or hospitality. Our members are saying they have reduced order books and thats a concern. Any furlough 2.0 scheme will be helpful in retaining staff even on a part-time basis so order books can be fulfilled.

I think going into next year could be tough especially its impact supply chains. As for Brexit, a lot of the details are still missing but most firms are prepared as much as they can by now so it shouldnt be the problem we thought it would be a year ago.

For Mr Conchie added: We are looking better in Cornwall than the national average. Cornish businesses are naturally resilient and used to run on thin margins rather than fat cats. Our SMEs are well embedded in their communities and will do what they can to avoid redundancies.

People have been looking at innovative and creative ways to work differently or even create new businesses to avoid any recession. I think if our local businesses can hold their nerves until next spring we should be OK.

Some businesses have been forced to operate at 60% or 70% capacity because of social distancing regulations while others have still not reopened.

One such business to have seen production stop overnight was Bott in Bude which specialises in workplace storage solutions. On March 24, production was shut down and only gradually reopened in May.

CEO Nick Smith said: We are a family company with a resilient balance sheet. When we announced the shut-down, we decided to top up the furlough payment until the end of May.

Unfortunately, with the clear volume reduction, we had to right size the business and sadly we will have lost 41 employees.

At the start of the lockdown, furlough clearly helped, but we took the difficult action early. I do fear for those zombie businesses who have used furlough to drag out the inevitable.

Mr Conchie believes businesses need to remain confident which may be easier said than done in view of the situation with the pandemic and faltering Brexit negotiations.

He said: We are at an unprecedented moment in history when after giving our word we show some cavalier attitude to a deal with have signed. Our standing in the world could be damaged by this and that doesnt fill businesses with confidence.

Some precision manufacturers in the Duchy who export all over Europe are worried about the implications of Brexit especially if it leads to countries like France or Italy deciding to do their own.

If Covid-19 is kept under control I think the tourism industry could see a bumper year next year which is good for Cornwall. Brexit may actually help on that front as people will look to staycations again.

I have no doubt that the hospitality industry will once again push the boat out to offer a first class service to visitors next year.

He said the service sector had also shown signs of having adapted remarkably well to the new normal and seemed unaffected with estate agents for example enjoying a boom time.

He added: Im not expecting a cliff edge at the end of October when a third of people will lose their jobs. But I think the furlough scheme needs to be applied with greater agility.

Mr Smith believes supporting the British manufacturing, innovation and continued investment, will be key in the coming months especially as we head into further unknown with Brexit.

He said: Backing British manufacturing is definitely a strong message for all our stakeholders, particularly with Brexit looming. We will block and tackle those things outside of our control, but we are accelerating our efforts for the things we can control.

I would like to think by the end of 2021, we start to get back to 90% of pre-covid volumes. One thing is for sure, the strong teams in Bott will continue to adapt and innovate!

Matthew Sewell, Head of Manufacturing at BDO in the South West echoed the sentiment, adding: Other countries do provide good examples of consistent long term support to their manufacturing sectors. The UK should look to adopt a similar approach.

Deborah Fraser, CBI South West Director, said without an agreement with the EU, UK firms could face tariffs of up to 16.4%, burdening them with extra costs and paperwork.

This will divert company resources from investment planning and spending from for growth to managing and mitigating red tape.

She said: Getting a good Brexit deal would be an immediate boost to confidence in the South West. It will help protect tens of thousands of businesses across the region already under huge pressure from the pandemic, not least in industries like advanced engineering and manufacturing, green technology and digital and cyber technologies.

Getting a deal requires political leadership and compromise from both sides, which is needed urgently in the coming weeks.

This article has been produced for the Annual Business Guide Top 150, sponsored by PKF Francis Clark.The guide profiles the biggest firms in Devon and Cornwall and takes a comprehensive look at the sectors that dominate the regional economy.We examine how they have been affected this year and chart the Covid-19 bounceback.See the full list of Top 150 businesses here and in print in the Western Morning News.

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How will South West manufacturers weather 'perfect storm' of Brexit and Covid-19 uncertainty? - Business Live