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UK manufacturers now expect output to fall this year

18 September, 2023

The positive picture of the UK manufacturing sector during the first half of 2023 has gone sharply into reverse, with recruitment being put on hold and orders slowing at home and abroad, according to the latest quarterly Manufacturing Outlook survey by Make UK and the business advisory firm BDO. The survey of 336 companies carried out in August found that manufacturers are battening down the hatches amid a sharp slowdown in activity – and potential recession.

As a result, Make UK expects manufacturing output in the UK to fall by 0.5% this year, and has downgraded its growth forecast for 2024 from the 0.8% it made earlier this year to just 0.5% now.

The survey comes at a time when 72.7% of companies believe that policy incentives elsewhere – such as the US Inflation Reduction Act and similar EU measures – are making UK investments harder to justify, while 74.1% say a lack of policy consistency in the UK is damaging efforts to build a reliable business environment. More than half of the companies surveyed say they have withheld investment in the past two years as a result of the uncertain environment, despite having access to investment capital.

Furthermore, more than half of companies (55.5%) say they would have invested more in the past five years or, in the future, if there was a formal industrial strategy in place.

Make UK is calling on the Chancellor to avoid tinkering with policies already in place and to use his limited resources to target measures on skills, digitalisation, productivity and energy efficiency. His priorities should include:
• Carrying out a root-and-branch review of the apprenticeship levy. Annual starts remain significantly lower than before the policy was introduced and appear to be falling again.
• Extending the 12-month 100% business rate reliefs on green plant machinery and equipment and on building improvements that were introduced in April 2023. Green investments should have a minimum of a three-year relief to reflect businesses’ payback period for their investments.
• Extending the Made Smarter scheme across the UK. Government should commit to the full rollout of Made Smarter which has proven to support the adoption of new technology by manufacturers, and explore extending the remit of Made Smarter to include industrial decarbonisation.
• Expanding the R&D tax relief to include capital equipment relating to industrial decarbonisation. The Government should build on the most recent qualifying extensions of the R&D tax relief to include capital equipment for green processing and industrial decarbonisation.

“Manufacturers are seeing a very sharp slowdown in activity as the potent cocktail of rising interest rates, cost of living and slowing overseas markets bites hard,” says Make UK’s policy director, Verity Davidge. “As a result, they are now battening down the hatches in the expectation that the next year is going to be anaemic at best and, potentially, much harder.

“While it’s clear the Chancellor doesn’t have a financial war chest to help boost growth, he should use his Autumn Statement to bring forward carefully targeted measures which could make a difference to companies’ efforts to boost skills and productivity. He should use whatever is available to get the best bang for his buck.”

According to the survey, the balance on output fell from +21% in the second quarter of this year to just 3% in the third quarter. Total orders turned negative at –1%, with both UK and export orders having dropped from +15% in Q2 to –3% in Q3. According to Make UK, the scale of the reverse highlights the extent of the slowdown. The survey also shows that for the first time since the EU referendum, recruitment plans have dropped into negative territory (–1%), compared to +19% in Q1 and +14% in Q2 of this year.

“There’s an argument here that says the Bank of England’s plan to raise interest rates and stamp out inflation is working,” comments Richard Austin, BDO’s national head of manufacturing. “But it is the scale of the fall in the indicators this quarter that comes as a surprise and highlights the extent of the slowdown on UK manufacturing.

Davidge: the next year is going to be anaemic at best

“Manufacturers are entering the final quarter on an increasingly unsteady footing,” he adds. “In the absence of an overarching industrial strategy from government, businesses will be forced to cut back, protect margins and focus on building on operational efficiencies over the next few months.”

Make UK:  Twitter  LinkedIn

BDO:  Twitter  LinkedIn  Facebook




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