At the start of this year UK manufacturers were more optimistic about the global economic outlook than at any time since 2014, says Simon Gallimore from AIG
At the start of this year, 40% of UK manufacturers were planning for growth. So when AIG and EEF publish their next executive survey in January it will be interesting to see if this positive sentiment has endured. At this point I’d be surprised if it does.
Let’s start, quite rightly, with Brexit. At the time of writing a no-deal scenario is a very real possibility, bringing with it a myriad of threats for manufacturers. These include higher input costs, a weaker pound and the threat of significant economic volatility in major markets. In addition, Brexit may see an increase in EU workers leaving the UK and the risk of major clients relocating overseas. UK manufacturers will need to explore trading relationships with new customers in new markets with all the associated uncertainty that will bring.
And if that was not enough to be worrying about, manufacturers are facing a whole heap of other threats that they could easily lose sight of with their attention focused on Brexit.
For example, the number one risk cited by manufacturers at the start of this year was that demand was outstripping supply given the lag in investment. If orders and output levels continue to improve, many companies could struggle to accommodate further growth in sales.
On the flipside, global growth prospects are a concern. Earlier this month the IMF cut its growth rate for this year and next from 3.9% to 3.7%, and that was without the US-China trade war getting any worse. Closer to home, inflation, rising wage pressures and the threat of further interest rate rises all have the potential to make life more complicated for manufacturers.
Technology too is a big issue. The so-called fourth industrial revolution will transform the manufacturing sector through smarter and more connected production, supply chains and products. The challenge for manufacturers is exactly what to invest in and when to keep up with the competition and maximise returns.
But risks inevitably run alongside the rewards this revolution will bring. As technology and data start to play increasingly critical roles in industry, companies will inevitably find themselves more vulnerable to effects of cyber breaches.
Against this backdrop of risks appearing on multiple fronts manufacturers need to remain vigilant and implement strategies to make sure they stay out in front of them. Over the coming months AIG experts will be publishing a series of articles taking a closer look at some of the key risks, what they mean for manufacturers, and how they can mitigate against them. Watch out for the first one coming soon, on the issue of cyber security.
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