Wales-based companies in the manufacturing and engineering sectors remain confident about future growth, despite continuing uncertainty surrounding Brexit, rising production costs and skill shortages, according to a new survey.

The latest Manufacturing and Engineering Report by UK professional advisory and accountancy network MHA, found that not only are 84% of SME manufacturers in Wales predicting future growth; they’re also taking steps to make themselves more efficient in order to counter rises in production costs and actively looking for ways to bridge the skills gap facing the sector.

Looking ahead to the next 12 months, 70% of Welsh respondents to the 2018/19 survey anticipated revenue growth of at least 5%, citing increased customer demand, diversification and a wider product range as the main drivers. This matched the figure for the whole of the UK, while respondents in Wales who expect staff numbers to increase over the same period stood at 68%, compared to 49% nationally.

Brexit remains a significant barrier to growth, with 30% of UK and 20% of Welsh firms citing uncertainty over future trade tariffs as their biggest concern. In response, 34% of UK firms and 24% of Welsh respondents say they have a Brexit plan in place, however, the vast majority still feel they cannot plan effectively until they know more about the UK Government’s plan and the EU’s response.

Increased costs of raw materials (96%), energy prices and wages (both 47%) were identified as the biggest factors in rising production costs in Wales, whereas a greater percentage of Wales-based respondents felt the availability of and funding for new premises has increased in importance as a barrier. To counter this, 54% of Welsh businesses say they expect to improve productivity and efficiency levels over the next 12 months, with 61% predicting the automation of more than a quarter and 22% more than half of their manual processes over the next 10 years.

Of those that are planning to recruit, the biggest concern for 32% of Welsh respondents is finding employees with the right skills, out-stripping fears over competition or salary expectations. Of those struggling to recruit, 56% said they cannot find enough skilled machinists/technicians, 28% cited a shortage of semi-skilled staff while 22% of respondents are still finding it difficult to recruit apprentices. This further highlights the call from businesses for the Welsh Government to implement tangible initiatives that will expand skills’ training for the future work-force at all levels of education.

The MHA research was supported by Lloyds Bank Commercial Banking and carried out in association with the Institution of Mechanical Engineers. MHA is represented in Wales by MHA Broomfield Alexander, which has offices in Cardiff, Newport, Swansea and Monmouth.

Ian Thomas, director at the firm, commented:

“This year’s survey suggests that Brexit uncertainty is just one of a number of factors impacting on the future plans of Welsh SMEs in the manufacturing and engineering sector, but also shows a certain level of resilience and confidence in the future that makes positive reading.

“There is undoubtedly more that can be done at government level to support SMEs in the development of export strategies, making investment in infrastructure and automation and improving the manufacturing skills base in Wales. It is also good to see that research and development is keeping pace with the rest of the UK, with 88% of Welsh respondents investing, but it remains concerning that almost half of these firms, 40%, failed to apply for R&D tax credits in the last financial year, missing out on thousands of pounds of savings.”

Dave Atkinson, Head of Manufacturing, SME, Lloyds Bank Commercial Banking, added:

“The findings of this report put a spotlight on the current sentiment, issues and opportunities that Britain’s decision-makers face. Manufacturing has never been more important to the success and growth of the British economy and this is even more significant in the coming months and years as the impact of leaving the EU emerges and the landscape for our clients’ changes.”

Matthew Rooney, Engineering Policy Adviser at the Institution of Mechanical Engineers, concludes:

“We are pleased to once again work in partnership with MHA to produce this year’s Manufacturing and Engineering Report. Although the risks of Brexit loom large this year, the Report shows that companies in the UK are still optimistic about the future. The Report also highlights that skills shortages are an ongoing concern in the industry. The Institution will continue to work with companies to promote engineering as an attractive career path for young people to ensure the country has the skills required to thrive in a competitive globalised world.”