Whilst the UK manufacturing sector ended 2016 with promises of greater infrastructure investment, a doubling of the UK’s export finance capacity, and extra funds ploughed into the sector, the year ahead will not be without its challenges.

Many of these are outlined in the MHA Manufacturing and Engineering report, which polled 500 manufacturing SMEs to understand the state of the industry; the challenges it is facing and the opportunities within its grasp.We know that reading through 47 pages of report copy is not the quickest thing to do so to save you the time, we’ve outlined the top 6 findings from the report.

Industry 4.0 is not just around the corner

Despite last year’s annual servitization conference receiving a higher turnout than the previous year, it seems that some of the hottest trends around the fourth industrial revolution are still empty buzzwords to many SMEs working in the sector. MHA’s report found that 74% of businesses still do not understand the principles underlying Industry 4.0, which suggests that the sector needs further education if we are to compete successfully with our manufacturing neighbours.

It is becoming expensive to keep manufacturing in the UK

Costs are rising and the lure of cost effective overseas labour is starting to tempt British manufacturers. A massive 93% of businesses surveyed said that they expect the cost of production to rise next year, while 75% are bracing themselves for an anticipated rise in raw material costs. In addition, 65% are worried about wage costs increasing, as the National Living Wage goes up in April 2017 from £7.20 to £7.50.

Skills are drying out…

Half of respondents put the global skills shortage at the top of their agenda, agreeing that more effort needs to be made to build links between industry and education. Just over half of manufacturing SMES polled (57%) intend to overcome the skills shortage by hiring apprentices or trainees next year, while 59% are desperately seeking production staff and a further 41% are struggling to find highly skilled machinists.

…Causing a growth in automation

To counter the threat posed by the skills shortage, 23% of UK manufacturing businesses are investing heavy sums into automation technologies, to streamline and accelerate production lines. A further 31% are adopting lean strategies as part of a cost cutting exercise, to become more productive, sustainable, and competitive, thus raising more money to plough into technology investments.

The future of UK manufacturing is all about the UK…

Last year’s Brexit vote has left a number of manufacturing businesses confused and worried, with only 19% feeling positive about the UK distancing itself from the EU. While this may affect the 65% of SMEs currently exporting, it won’t do much to alienate the competition, as 68% of manufacturing SMEs in the UK believe that most their competition comes from within the UK.

….And to keep UK manufacturing strong, we need more innovation

Many UK manufacturing businesses struggle to compete on price when it comes to the global market, forcing many to invest instead in innovation and the quality of products in order to win business. And Britain’s manufacturers are pouring a great deal of effort into research and development, with 88% investing a percentage of turnover back into R&D. Only 12% do not spend any money on R&D, but this figure could be changed considering that 10% are not aware that they can claim back tax credits for research and development activities.

Overall, the UK manufacturing is still facing a number of challenges and while some of these may be eased by new government initiatives, the sector still needs to brace itself for a difficult period. However, there are some positives. Clearly innovation is strong within the UK manufacturing sector and if businesses believe that the majority of their competitors are in the UK, this can only mean that our industry is still riding high. It remains to be seen how the sector counters some of the ongoing issues affecting it, such as the skills shortage, but the MHA survey indicates that many are starting to deploy contingency plans, and asking automation to bear the brunt for now.

To download the MHA manufacturing report, click here.

Far-reaching impact on business