Sir Ronald Halstead, President of the Engineering Industries Association (EIA), attended the Bank of England meeting on 23 March 2017 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.
This survey is influenced by the Brexit referendum result and the structural changes in Whitehall. In comparison with the last survey of 16 September 2016 the following trends are apparent:
- Business Confidence is higher
- Overall Growth is higher
- UK Demand is stronger although 60% is still flat
- Export demand is very much stronger
- The number of people employed is mostly static
- The average increase in pay per employee is mainly 0-2% although the 2-4% is increasing
- There are still skill shortages
- 60% of survey will increase prices compared with 23% last time
- Investment intentions are about the same as previously
The factors influencing the results include the following:
- The significant decline in £sterling has boosted exports. There are signs of increased import costs. At this value of the £ there is a great opportunity for SMEs in the export markets. However the Department of International Trade (DIT) is causing serious problems by delaying the agreement for overseas trade shows under the TAP programme. SMEs are losing their opportunities to book space at overseas shows and these are being picked up by competing countries. There is great concern about the inexplicable performance of the DIT which is jeopardising the export activities of SMEs across all industries.
- Some companies are experiencing problems with their Banks on exports to Iran. The Government has asked our industry to build an export trade to Iran under the new political agreement. Lord Lamont has taken a Trade Delegation to establish trade links. However even if the companies get an export licence for a sale to an Iranian company there are doubts that the UK Banks will support the transfer of funds from Iran.
- There is increasing concern about the possible impact of Brexit on manufacturing. Many companies have supply lines extending across Europe with ‘just in time’ systems for their production lines. Any interference by customs and/or tariffs in/out of Europe could cause serious problems and disruption of business.
The big 4 Banks still have a negative attitude to lending to SMEs and the key points are very much as reported to the last meeting which were 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:
"It is difficult to promote business and grow when limited finance access is available. The Government should address opportunities for SMEs to finance exhibition attendances amongst others enabling us to promote our services. Currently bank support is stagnant, it is hard to find funds to ‘get involved’ and this is directly affecting production, turnover and jobs growth."
"I am not sure what we do with a lot of animosity on all sides in UK. When we had 59% of 50 % of the UK population voting for Brexit which makes 30% of the UK population voting yes, I wonder when that fact will have some resultant difficulties in communications at home and with the EU. In Australia everybody has to vote on such things. Probably better, cleaner and clearer. Good orders at the moment but a foggy time ahead."
"50% of our turnover goes to Europe, without a free trade agreement we have no future. Things have been very difficult in the North East of England throughout 2016 as the downturn in the Oil & Gas sector has already seen a lot of companies closed within the engineering sector. It’s critical for our region that Brexit does not impact on us any further as we rely heavily on our European trade."
"Brexit could well shut us down if any interference from customs and/or tariffs in and out of Europe occurs on time critical deliveries both ways. All raw materials come from the EU and over half our exports go there. We are considering relocating certain plant into the EU. Brexit as outlined so far will kill off the remains of high tech manufacturing due to the very high levels of integration with EU customers & suppliers. For example we cannot even buy precision steel strip in the UK, it has to come from Germany! These people MUST have the realities explained to them if the economy is to continue and the bigger end of the SMEs are to prosper."
"We are receiving more enquiries for export which appears to be underpinning the slow down in the UK. The UK slowdown is not a loss of sales, it is companies thinking too long, a 'what if' syndrome."
"Weak GBP means imports 15-20% more expensive therefore have to raise prices."
"Sterling exchange rate has helped with overseas new orders, but due to long completion time for our machinery projects we are now being caught out by increased component costs which are universally being increased by 5% minimum."
"Big worry over new UK regulations that will be put in place to replace current (EU) regulations: duplication/cost, out of date and fear that quality levels will not be maintained. Superficially we benefit from currency moves but already see UK business projects postponed. WTO rules address online/internet issues poorly (vague and out of date)."
"To export requires a higher risk and outlay to get products ready and legal requirements all in compliance. We also need to extend our IP for other countries, all registered or filed. These cost for a small business are much higher compared with larger businesses. Yet small businesses have a much bigger growth potential. There is too much emphasis on the small business owners that are in most cases still learning the trade and probably paying themselves very low incomes so they can reinvest capital for growth. There should be more focus on the products and brands that can be seen as highly viable and exportable, ideally with the raw resources available from the UK and products manufactured in the UK. I'm worried that loans to small businesses that don't consider these points are getting it wrong. The person or people in a company can get trained or replaced and the small business can succeed. Small businesses can also adapt to market changes more rapidly and outsource work in their local community. We also don't need a large lump of venture capital but a trickle to pay those bills that are part of the growth plan. Things like legal docs, IP and translations. I think small businesses with strong export potential should be able to make a general funding application and reviewed by a board of company directors, not a pitch but purely on a demonstration and showcase of products and mockups of future products and how they work (USPs, tgt market(s), prices etc) can be presented but the value of the product should be paramount. Invest then in these businesses and see that the staff receive targeted job training to follow the Export plan."
"Customs & Excise need to be more user friendly and aware of the situation of small businesses that export."