Economy

Manufacturers’ Reluctance To Borrow ‘Risks Growth’

Investment intentions are strong among UK manufacturers, but many are building cash reserves and are shunning bank finance, according to new data.

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Investment intentions are strong among UK manufacturers, but many are building cash reserves and are shunning bank finance, according to new data.

Economy

Manufacturers’ Reluctance To Borrow ‘Risks Growth’

Investment intentions are strong among UK manufacturers, but many are building cash reserves and are shunning bank finance, according to new data.

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A report published today by the Engineering Employers’ Federation (EEF) shows that factories remain skeptical of borrowing from banks ever since the credit crunch, which began nine years ago.

According to the research, 85% of manufacturers are confident of securing finance, but on 35% are more likely to borrow than they were two years ago.

More than half admitted to holding more cash on their balance sheets than prior to the 2009 recession and about the same number said they wouldn’t investment if they couldn’t fund it themselves.

EEF said this unwillingness to use debt would solidify further after the UK voted to leave the European Union.

Lee Hopley, chief economist at EEF, said: “Manufacturers’ reluctance to rely on external finance is a persistent hangover from the credit crunch, where trust and confidence in the banks stalled and never quite recovered.

“But with the Brexit vote dampening investment intentions and adding to uncertainty, this pre-existing condition could now become further aggravated, posing a risk for growth.”

The Compeition and Markets Authority (CMA) is due to make recommendations to improve competition in the banking sector tomorrow. It is likely to suggest making switching banks easier for small businesses.

Ms Hopley said the recommendations could help improve manufacturers’ perception of the banking sector.

“The CMA cannot prevent a fall in investment intentions, but it can help to strengthen supply dynamics in the market and resolve some of these long-term issues by providing swift and firm remedies that pack enough punch to stop the rot.

“Whether the next recession is in one year or 20 years’ time, the problems in this vital market must be fixed. Manufacturers must have access to finance - progress needs to be seen.”

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Manufacturers’ Reluctance To Borrow ‘Risks Growth’

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