Brexit: Fear of skilled labour shortage hits 28-year high for UK's small manufacturers

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The UK’s small and medium-sized (SME) manufacturers grew output at the fastest pace in seven years in the three months to July, according to an industry survey.

However, fears that a shortage of skilled labour would restrict production in the near-term rose to their highest level since October 1989.

The UK unemployment rate dropped to 4.5 per cent in the three months to May - its lowest level since 1975 - and firms fear a reduction in skilled migration as a result of Brexit will make finding staff even more difficult.

The proportion of firms who said output would be restricted by a lack of orders or sales fell to the joint-lowest level on record.

The Confederation of British Industry’s survey of 364 manufacturers found that total new orders had continued to rise at a strong pace during the period, with export order growth the highest since April 2011.

Investment intentions were broadly unchanged compared with the previous quarter, remaining at above-average levels; the exception was planned capital expenditure on product and process innovation, which strengthened slightly.

Cost pressures remained high, but eased compared with the previous quarter, with further moderation anticipated.

Similarly, the price of manufactured goods leaving the factory gates continued to rise at a strong pace relative to the first quarter. Looking ahead, the price of goods for the UK market is expected to rise at a softer pace whereas those for overseas destinations are expected to continue rising strongly.

Alpesh Paleja, the CBI’s principal economist, said: “It’s encouraging that activity among SME manufacturers has risen strongly over the past three months. Firms are clearly in an exporting sweet spot, able to exploit the competitiveness gains from a low exchange rate and a firm global backdrop.

“But the boost from a lower exchange rate will fade over time, so maintaining frictionless and tariff-free trade routes with the EU will be critical for future exporting success. This is particularly true for SMEs, as preparing for the UK’s exit from the EU is significantly more difficult for smaller companies facing greater pressure on their resources.

“There are clearly other concerns on SMEs’ minds too, notably labour shortages, demonstrating the need to continue accessing talent from overseas while pursuing homegrown skills development as part of a meaningful industrial strategy.”