22 Jul 2024


Make UK doubles 2021 growth forecast to 7.8%

The Make UK/BDO survey reveals that investment and employment intentions among UK manufacturers have both moved into positive territory

The UK’s manufacturing sector is set to recover much of the “brutal” 10% decline that it suffered during 2020, and to outpace the growth of the UK economy as a whole this year, according to a survey and study published by Make UK and the business advisory firm BDO. They have doubled their 2021 growth forecast for the manufacturing sector from 3.9% to 7.8% (and are expecting the UK economy as a whole to expand by 7.5% this year).

They say that the expected growth is based on a surge in domestic orders and a rebound in export orders, which is translating into strong hiring intentions. Output volumes have hit the highest level in the survey’s history and expectations for the coming quarter are said to be “very strong” across all of the key indicators. However, prices are rising and margins are continuing to decline.

The quarterly survey of 276 manufacturers also finds that their investment intentions have turned positive for the first since the first quarter of 2020, suggesting that the introduction of the temporary “super-deduction” tax in the Budget, together with improved growth prospects, are having an impact.

However, Make UK stresses that the figures reflect a recovery from a very low base, with last year’s figures plummeting to record lows that were worse than those seen during the financial crisis. Between 2019 and 2020, the manufacturing sector lost around £18bn in value. Make UK believes that it will take more than a short-term boost of pent-up demand to return the sector to its pre-pandemic size.

But its forecasts do suggest – assuming that the vaccination programme is effective – that manufacturing output levels will return to pre-pandemic levels by the end of 2022. That is sooner than previous forecasts had suggested.

“Manufacturing growth is now firmly accelerating as restrictions have been eased and economies around the globe have started to open up,” says Make UK’s senior economist, Fhaheen Khan. “Looking forward there seems no reason to believe that this will not continue, assuming the shackles come off firmly in the second half of the year.

“However,” she adds, “given we are coming from a very low base – worse than during the financial crisis – we have to bear in mind that there was bound to be a rubber-band impact this year. Furthermore, for some sectors, such as aerospace, the limited prospects for international travel in the near future means they may struggle to return to normal trading for some time.”

Mirroring other indicators across the economy, the Make UK/BDO survey shows an increase in both domestic and export orders in response to supply shortages and increases in the cost of raw materials and shipping costs. This is not being translated into higher margins however, suggesting that manufacturers’ profits are being squeezed.

“Manufacturers have fought hard to recover from the brutal impact of the pandemic and have made great strides since the start of the year,” comments BDO’s head of manufacturing, Richard Austin. “With investment intentions having turned positive for the first time since the first quarter of 2020, it appears the government’s introduction of the temporary super-deduction tax has provided the incentive manufacturers needed to bring forward their investment plans.

“We know targeted tax policies can have a huge impact but, with the melting pot of challenges ahead around supply chains, availability of basic commodities and rising inflation, we need the government to look at longer-term strategies to allow the sector to build back better and confidently invest over the next 10-15 years,” he adds.

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