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Make UK raises growth forecast from 2.7% to 3.9%

15 March, 2021

Make UK, the organisation that represents UK manufacturers, has upgraded its 2021 growth forecast for the sector from 2.7% to 3.9%, following a survey that shows output increased in the past quarter following three quarters of shrinkage.

The survey of 314 manufacturers, conducted with the business advisory firm BDO, reveals that the UK’s manufacturing output fell by 10% during 2020. As the vaccination programme gathers pace and major markets recover, growth is returning but will it take a while to return to pre-Covid levels, Make UK predicts.

UK orders have risen, but export orders are still negative, despite a significant pick-up in manufacturing in the EU. Make UK believes that the post-Brexit trading arrangements are having impacts on trade that go beyond “teething problems”. Last week, Make UK published figures showing three-quarters of companies were facing delays at ports.

UK manufacturers are still not intending to invest, although they are sounding more positive on this front than they have been in the past few quarters. Make UK hopes that the Budget announcement of a “super-deduction” tax will give a boost, but warns that the UK faces a structural problem with long-standing, relatively low levels of investment. Given that the incentive lasts only for two years, it adds, more longer-term measures will be needed to make a real step-change.

“After the seismic shock to the sector last year, manufacturers are now beginning to move through the gears and accelerate into recovery as demand at home increases and major markets also begin to pick up,” says Make UK CEO, Stephen Phipson. “Looking forward, we are now at an economic crossroads. We have a major opportunity for Government and industry to work together on a long-term vision which ensures we take advantage of the acceleration in technologies, our capacity for innovation and world class academic and science base. Future generations will not look back kindly if we do not grasp it.”

According to the survey, the balance on output improved to +9% in the past quarter – compared to -5% -36% and -56% in the previous three quarters. Output is predicted to reach +15% in the second quarter – in line with average historic levels.

Total orders improved to +9% in the second quarter, compared to -3%, -40% and -53% in the previous three quarters. However, while UK orders improved to +6%, export orders fell to -8% (a small decline from -5% in the previous quarter).

This is the first time that domestic orders have been in positive territory since the third quarter of 2019. Make UK suggests that this may reflect increased local sourcing resulting from the increased bureaucracy and cost of importing components post-Brexit. Recent Make UK research showed that one in three companies had no experience of Rules of Origin forms.

While the balance on investment intentions has also improved to -6% from -11%, it has now been negative for four quarters in a row. In the first quarter of 2020 it was +20%, following a short-lived investment boom driven by the December 2019 election.

Although domestic orders have picked up, export orders are still in negative territory, but they may turn positive in the next quarter
Source: Make UK Manufacturing Outlook Survey

The balance for recruitment has improved slightly to -7% from -14% the previous quarter. However, Make UK is expecting recruitment to turn positive at +13% in the second quarter as companies start to hire again. But the picture for investment remains negative at -6%, although the survey was conducted before the Budget. The coming two quarters will give an indication of the impact of the investment tax incentive announced in the Budget.

“With investment intentions remaining in negative territory, the Chancellor’s recently announced super-deduction tax incentive presents a real opportunity for those manufacturing firms with access to finance to bring forward investment plans into the qualifying period and boost their productivity,” comments BDO’s head of manufacturing, Richard Austin. “However, the proposed two-year window is arguably too short. What manufacturers really need is certainty over the longer term to allow the sector to confidently invest over a 10-15 year horizon.

“While the results of this quarter’s survey are encouraging, the next 6-9 months will nevertheless be critical for those manufacturers facing financial distress,” he adds. “Many will have deferred tax payments and taken on additional loans to help them through the crisis. The recently announced extension of the furlough scheme and other support measures will help in the short term, however, many will need to use this time to plan and implement turnaround strategies – and in certain cases take some tough decisions.”

As well as upgrading its forecast for manufacturing, Make UK has slightly upgraded its forecast for UK GDP for 2021 from 5.4% to 5.5%.

Make UK:  Twitter  LinkedIn

BDOTwitter  LinkedIn

Although investment and recruitment are both still negative, things may improve in the coming quarters
Source: Make UK Manufacturing Outlook Survey

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