Date: September 19, 2023
The latest data from Make UK and business advisory firm BDO indicates that British manufacturers are facing a significant slowdown in activity and are bracing for the potential of a recession. The findings from the Q3 Manufacturing Outlook survey reveal that the positive momentum observed in the first half of the year has now reversed, with recruitment plans halted and orders declining both domestically and internationally.
Key findings from the survey include:
Recruitment plans have substantially eased, falling from a positive balance of +19% in Q1 to +14% in Q2 and finally to -1% in the latest survey.
A majority of companies (72.7%) believe that policy incentives in other countries, such as the US Inflation Reduction Act and similar EU measures, are making it more challenging to justify investments in the UK.
A similar number of companies (74.1%) cite a lack of policy consistency in the UK as detrimental to efforts to create a stable business environment.
Over half of the surveyed companies have withheld investment in the last two years due to the uncertain business climate, despite having accessible investment capital.
More than half of the companies (55.5%) would have invested more in the last five years or plan to invest more in the future if there were a formal industrial strategy in place.
In response to this downturn, Make UK is calling on the Chancellor to focus limited resources on measures targeting skills, digitalization, productivity, and energy efficiency. Specific priorities recommended by Make UK include:
A comprehensive review of the apprenticeship levy, which should reflect the decline in annual apprenticeship starts.
Extension of the 100% business rate relief on green plant machinery and equipment and building improvements for a minimum of three years to align with businesses’ investment payback periods.
A commitment to the nationwide rollout of Made Smarter to support technology adoption in manufacturing businesses and explore extending its scope to include industrial decarbonization.
Expansion of the R&D tax relief to cover capital equipment related to industrial decarbonization.
Verity Davidge, Policy Director at Make UK, emphasized the need for targeted measures to support businesses facing challenges due to rising interest rates, the cost of living, and slowing overseas markets. She urged the Chancellor to use available resources effectively to boost skills and productivity.
Richard Austin, BDO’s National Head of Manufacturing, noted the surprising scale of the decline in indicators during the quarter, highlighting the extent of the slowdown in UK manufacturing. In the absence of a comprehensive industrial strategy from the government, businesses are expected to focus on cost-cutting, margin protection, and operational efficiencies in the coming months.
The survey of 336 companies was conducted between August 16 and 30, 2023.
According to the forecast by Make UK and BDO, overall output in the UK manufacturing sector is expected to contract by -0.5% in 2023, slightly worse than the -0.3% forecast in Q2. The growth forecast for 2024 has been downgraded to just 0.5%, down from the 0.8% forecast in Q2.