Sir Ronald Halstead, President of the Engineering Industries Association (EIA), attended the Bank of England meeting on 16 September 2016 and presented the results of their recent survey among SMEs in Engineering.
The SME survey from IOE&IT Trade Association member, the EIA, is distributed twice yearly to EIA and IOE&IT members on behalf of EIA President, Sir Ron Halstead, and forms part of a larger Bank of England survey into the current economic and financial prospects for SME’s.
The key findings revealed:
This survey is influenced by the Brexit referendum result and the structural changes in Whitehall. In comparison with the last survey of 21 March 2016 the following trends are apparent:
- Business Confidence is still good, but has declined
- Overall Growth is lower
- UK Demand is flat
- Export demand is stronger
- The number of people employed is mostly static
- The average increase in pay per employee is mainly in the 0-2%
- There are still skill shortages
- 10% of survey will increase prices compared with 30% last time
- Investment intensions are about the same as previously
The factors influencing the results include the following:
- The significant decline in £sterling has boosted export opportunities, although causing some concern over increased import costs. At this value of the £ there is a great opportunity for SMEs in the export markets, however the degree of support from the Department of Trade, formally UKTI, is still uncertain and we are losing our position at overseas trade shows from competing countries.
- There are still problems in the oil and gas sector – the fall in the price of oil has dramatically reduced investment causing difficulties for the SME sub-contractors.
Members are still having problems funding their businesses particularly for investment and growth. The big 4 Banks still have a negative attitude to lending to SMEs and some of the key points are as follows:
- Many SMEs are operating within their own cash flow or obtaining additional funds from shareholders, family and friends or re-mortgaging their homes etc.
- The alternative lending market is expanding.
- The British Business Bank (BBB) is helping the alternative lending market. A further development is the formation of URICA funded by the BBB and RSA insurance which helps SME cash flow by financing invoices and taking responsibility for chasing and collecting the debt.
- There is still a problem of payments affecting SME cash flow. Large companies, who are reported to hold large cash piles, should be encouraged to pay their suppliers within 30 days or as quickly as possible. This will help the whole supply chain.
Here is a selection of member comments from the survey:
"Business Confidence is lower because nobody knows what is going to happen, there has been an element of panic, however as normal trading relationships go, we have not left the EU (yet?). Salary increase could be 2% minimum or higher depending on the level set for the National Living Wage. If the new chancellor maintains the commitment made by his predecessor to achieve a NLW of £9+ by 2020 there needs to be an increase of 8% next year. This commitment needs to be abolished as it is a too heavy burden on business on top of everything else. Increasing prices depends on the contract relationship with the customer. We made a large exceptional investment in 2016 which will not be required in 2017 however we will still be investing. Raising finance is not applicable."
"Brexit is already a disaster and won’t get any better, there is no plan B, and we will see 5 years + of no growth. Anyone who knows anything about economic history knows that the Brits cannot be trusted to do trade deals that favour Brit manufacturing, eg 1962 Anglo-Japanese trade deal that helped kill off the Brit manufacture of motorcycles. Obsession with “free-trade” will ensure that we will get wiped out by the pragmatists elsewhere."
"The biggest effect to our business has been from the rise in the ‘living wage’ with hardly any notice to budget and increase prices to be able to pay for the increased costs in ages, NI and pension contributions!"
"Skill shortages have made it very difficult to complete our orders on budget, leading to time and cost overruns and losses. Wage awards within the sector have been unsustainable. Our main market is export and Brexit may have a major impact on this. However, weaker sterling helps us and some local unemployment may cool down demand for unsustainable wage increases and make recruitment more achievable."
"1 September 2015 to 31 August 2016 has moved to be our best and busiest year for turnover and profit. However, since the announcement of Brexit from the EU, and the drop in value of sterling, we have had to raise our prices. We anticipate a reduction in turnover during the next year commencing 1 September 2016 which will be our 21st year of trading."
"We are an independent Logistics company operating in Southampton. We expect our Export focused customers to increase their business, Import customers may face pressure on margins with the weak Pound.However, people do have short memories and it is not that long ago that Sterling was at similar or lower values against the Euro and the Dollar. It is very easy to blame the weakness of the Pound and hide bad news behind "Brexit". The reality is that at the moment nothing has changed, and my personal feeling is that business with continue as it always does, and that the EU will as far as our relationship with them will return to a "common market". Despite the media hype when I have spoken to people from other EU member states many of them would also like to turn the clock back so that the EU becomes more focussed on Free Trade than becoming a Federal State."
