Half of small and medium manufacturers in the North West are planning to increase their capital investment in the next year in spite of Brexit uncertainty, a new survey has found.

The latest MHA Manufacturing and Engineering Report found that exactly half of the 2,109 businesses surveyed across the region are looking to plough ahead with investment in capital or fixed assets such as machinery over the next 12 months.

Just over half (51 per cent) said they have high or above average business expectations over the next 12 months, with 70 per cent predicting business growth over the same period and 71 per cent reporting revenue growth in the last year.

Despite a generally positive outlook, the report – compiled by Cumbria-based accountancy and business advisory firm MHA Moore and Smalley, Lloyds Bank Commercial Banking and the Institution of Mechanical Engineers – also had a sting in the tail.

It found that 92 per cent believed that rising production costs would have an impact on their business. However, 67 per cent of respondents said they intended to absorb price increases rather than pass them on to customers, with 52 per cent saying they would achieve this by improving productivity and efficiency.

Staff recruitment was also raised as a major issue, with 81 per cent reporting problems finding the right people even though just under half (49 per cent) expect to grow staff numbers over the next year.

And only 34 per cent said they have a strategy in place for post Brexit, with 66 per cent revealing they do not feel able to plan for the impact on their business until they know the detail of the trading deal between the Government and the EU. On the flip side, only 30 per cited Brexit uncertainty and concerns over trading tariffs as the main barrier to future success.

Of the respondents, 58 per cent export their products, and all of them to the Eurozone.

Ginni Cooper, head of the manufacturing team at Kendal-based MHA Moore and Smalley, said: “This survey gives great insight into what’s happening within the sector at a ‘grass roots’ level. 

“Yes, there are concerns over the rising cost of materials, the unpredictability of the pound and a continuing crisis around the skills shortage, but businesses are demonstrating their resilience. 

“Brexit uncertainty is not necessarily having the impact some would lead us to believe. What our respondents agree on is they need greater support from the Government over automation and forging better links with local schools, colleges and universities to improve the talent pool.”

The research identified increased customer demand (18 per cent), diversification (14 per cent) and a wider product range (13 per cent) as the main growth opportunities for businesses.

And while 89 per cent had invested in research and development, just under half (48 per cent) had failed to apply for R&D tax credits, which have the potential to save businesses thousands of pounds.

The survey comes after a new report found that, nationally, manufacturing output hit a four-month low in February, while stockpiling in the industry hit yet another high.

The Markit/CIPS UK manufacturing purchasing managers’ index (PMI) showed a reading of 52.0 last month for output – lower than a revised reading of 52.6 in January but still above the figure of 50, which indicates growth.

The stocks of purchases balance for the same month stood at 59.1, compared to the previous record high of 56.8 reported in January.

Almost 70 per cent of the companies surveyed said the build-up of stocks was due to Brexit. 

Rob Dobson, director at IHS Markit, which compiles the survey, said: “The current elevated degree of uncertainty is also having knock-on effects for business confidence and employment, with optimism at its lowest ebb in the survey’s history.”