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UK manufacturers call for stimulus package to save jobs

18 June, 2020

Britain’s manufacturers are calling for a national recovery plan, including an immediate stimulus package, to boost investment and help save jobs, on the back of a survey that reveals how output in the sector has plunged to a record low as the full impact of the Coronavirus crisis hit home.

The Make UK/BDO Manufacturing Outlook Q2 survey of 309 companies, carried out during May, shows that the output balance reached its lowest level in the survey’s 30-year history. Looking forward, the survey reports that the prospects for the next quarter and the rest of the year look little better.

The manufacturers’ association Make UK says that while the furlough scheme appears to have mitigated the worst impacts of immediate redundancies, evidence suggests that without government intervention to free up firms to invest again, the scheme has merely delayed large-scale redundancies, in addition to those already announced in the aerospace and automotive sectors.

The organisation is calling on the Government to work with business and others to create a national recovery plan. In the short term, this should start with an immediate stimulus package including a business rates “holiday” for manufacturers, similar to that granted to the retail sector earlier this year. Make UK believes that this would be the single most important measure the Chancellor could introduce, having the quickest impact for companies of all sizes and across all sectors.

The rates holiday should be accompanied by other immediate measures, including a national infrastructure strategy with a commitment to immediate projects to help supply chains, a car scrappage scheme, and incentives to invest in digital technologies and skills. Make UK has also repeated its previous call for Government help in recapitalisation to provide direct support of key sectors and companies – in particular, to allow companies to access capital to service debts incurred during the lockdown.

According to the survey, output hit a record low of –56% during the second quarter, while UK and export orders both fell to –52% – comparable with the levels seen during the worst of the financial crisis.

Export orders turned negative last quarter for the first time since 2016, showing that demand in major markets was already slipping, a situation the Covid crisis has exacerbated.

The prospects for the next quarter appear little better, despite the easing of lockdowns across Europe and Asia, with the forward-looking indicator of output for the next three months being -42% – the worst in the survey’s history. While a slight improvement is expected for total orders in the next quarter (–41%), Make UK says it remains “an extremely distressed balance historically”.

“These figures graphically illustrate the severity of the crisis facing manufacturers of all sizes and in all sectors right across the UK,” says Make UK’s CEO, Stephen Phipson. “As with all other crises, however, the sector will find a way to recover, though there is no disguising the immediate months and, perhaps years, ahead will be some of the toughest industry has ever faced.

The Make UK/BDO survey reveals that employment and investment levels of the lowest they have been since the economic crisis
Source: Make UK Manufacturing Outlook survey

“To help get the UK economy and manufacturing back on its feet as we emerge from lockdown, it is vital that every part of Government puts its shoulder to wheel with a national recovery plan for the short and long term,” he adds. “The Chancellor can lead this charge with an immediate package of measures to provide the consumer and industry with the shot in the arm they need.”

The Make UK/BDO survey shows that all sectors suffered a severe drop in output, with those closely connected to the automotive, aerospace and construction sectors suffering particularly badly.

Make UK describes the levels reached by those sectors connected with investment in capital and automation as being “especially concerning” with machinery equipment recording –70%, electrical equipment –67% and electronics –54%. The organisation says that these sectors serve as a proxy for investment in new technologies across the wider economy. Just 11.7% of the companies surveyed said they were operating at full capacity.

Both employment and investment levels have been cut back significantly. The employment balance fell to –22%, indicating that many companies are already making redundancies. Without the job retention scheme, it is likely that the employment figures would have reached the worst levels in the survey’s history. The employment balance is forecast to accelerate further in the next three months to -36%.

Having appeared to turn a corner at the start of the year after the greater certainty provided by the election and leaving the EU, the picture for investment has gone into reverse falling to a balance of –26%. Make UK is now forecasting that manufacturing will contract by almost 10% this year (-9.4%) before clawing back some of this loss in 2021 (+6.2%).

“With output plunging and order books shrinking, many manufacturers have had to ditch their investment plans and rethink their priorities,” reports Tom Lawton, BDO’s head of manufacturing. “While the short-term support packages offered to date have provided a lifeline, it’s becoming increasingly clear that the Government needs to develop a comprehensive strategy to provide long-term stability for the manufacturing sector. This could include direct support for some of the country’s largest manufacturers that so many small and mid-sized suppliers rely on, in addition to new incentives to encourage investment in digital transformation and productivity improvements.

“With Covid-19 causing instability in global supply chains and uncertainty surrounding our future trading relationships, the UK will become more reliant than ever on its manufacturing sector,” Lawton adds. “Now is the time for the Government to step up and show its support.”

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