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Deloitte’s Simon Manning on North East manufacturing

The success of the North East’s manufacturing businesses is central to any effort to rebalance the UK economy.

But despite a renewed focus on boosting UK manufacturing, as 2012 began, it is still proving extremely difficult for many manufacturers to grow.

The most recent official figures showed a fall of 0.6% in manufacturing output in November 2011, compared with the previous year.

A number of factors are responsible for this, in addition to the current uncertainty in the Eurozone which is clearly affecting the ability of the North East’s exporters to plan for the future and spending reductions in areas such as Defence and Transport, North East manufacturers face an additional set of obstacles that are holding back jobs and growth in the sector.

Rising energy and raw materials costs mean factories across the North East are feeling the effects of sustained upwards pressure on the price of raw materials.Natural disasters and political unrest last year have led to shortages and supply challenges of raw materials and energy.

A recent EEF survey of senior manufacturing leaders showed 80% now regard a shortage of raw materials as a risk to their business. Of these, two thirds said it was their top risk. In addition, 1 in 6 companies said that a shortage of raw materials is now a brake on growth.

The recent fall in wholesale energy prices may offer some relief but in many cases firms have had to absorb the cost of previous price rises in order to maintain market share.

Other issues including the difficulties associated with accessing capital markets and the challenge of attracting skilled workers also need to be addressed in order to boost growth and job creation in the industry.

Another major concern for manufacturers, Access to Funding is shared by many businesses as traditional bank lending is still proving difficult to achieve for manufacturers, despite the second round of the Regional Growth Fund allocating £93m to companies in the North East including many manufacturers.

To people outside the sector, the most surprising of these structural issues, given the latest unemployment statistics, is that recruitment remains a major issue for many manufacturing firms.

Despite rising unemployment and particularly high youth unemployment, manufacturers are still reportingdifficulties in locating the necessary skilled labour to fill apprentice and graduate vacancies. This is backed up by research from the UK Employer Perspectives Survey which shows that the UK working age population has lower skills than the workforces in France, Germany and the USA.

The success of North East’s manufacturing industry remains central to the rebalancing of the economy but addressing these challenges is key to stimulating growth in the sector.

This was posted in Bdaily's Members' News section by Simon Manning .