4 minute read - 16th September 2024
Confidence among UK manufacturers rises to equal highest since 2014 despite output and growth challenges
The investment intentions of UK manufacturers remain positive and business confidence has risen to equal the highest level recorded since 2014, this despite overall output dropping, according to the findings of the Q3 Manufacturing Outlook report published by Make UK and business advisory firm BDO.
Make UK says manufacturers have yet to see an immediate boost from a change of government but, in contrast, are forecasting a boost to overall economic prospects from a period of greater political stability. The report shows that while overall sector growth in manufacturing continues to be challenging, almost six in ten companies (58%) believe that the recent change in government will lead to better economic growth overall in the next twelve months. In contrast, just 6% of companies expect GDP to decline this year as a result of the new government. Consequently, Make UK has upgraded its forecast for the economy overall in 2025 from 0.8% to 1.8%.
Make UK also recommends that the government should look to keep up the improved outlook for growth by publishing further detail on the long-awaited Industrial Strategy. This should include the composition, and governance, of the Industrial Strategy Council.
Manufacturing sector confidence has risen to its equal highest since 2014 and investment intentions remain positive despite output and growth challenges, according to the latest Manufacturing Outlook report from Make UK and BDO / Picture: Getty/iStock
The government should also use the next fiscal statement to further boost growth and remove unnecessary barriers, advises Make UK. This includes:
1 – Bringing forward the UK CBAM (Carbon Border Adjustment Mechanism) to 2026. Delaying the introduction of the UK CBAM to 2027, a year later than the EU CBAM, introduces additional risks of trade diversion of materials such as high emission steel in the UK market, which a 2025 introduction of the policy could avoid.
2 – Reviewing and uplifting apprenticeship funding bands. The cost of running engineering apprenticeships is far greater than the amount employers can currently spend from their levy pots. This has played a major part in a 40% drop in apprentice starts since the introduction of the Levy.
3 – Making a greater commitment to more long-term, large scale infrastructure projects that will make the UK a more attractive place to invest. According to Make UK, the Treasury must take a bolder approach to valuing the benefits and return on investment of infrastructure projects by increasing the emphasis on secondary or indirect benefits. Currently, Make UK believes there is too much focus on cost and not enough on outcomes.
Fhaheen Khan, senior economist at Make UK, said: “This quarter presents a tale of two halves with output turning negative and recruitment taking a dip, yet investment remains positive and business confidence continues to climb. With an Autumn Budget and Spending Review fast approaching, now is the time for government to pick up the pace and deliver on pre-election promises, most notably the publication of a long-term robust Industrial Strategy. This must be combined with policy levers that help not hinder growth and international competitiveness. In particular, this means bringing forward immediately the UK CBAM and taking measures to tackle the disastrous apprenticeship numbers.”
Richard Austin, head of manufacturing at BDO, added: “Manufacturers are hopeful that a period of greater political stability will provide a better economic outlook ahead, and that in turn is boosting business confidence. Time will tell if that confidence can translate to improved output and orders next quarter, but there’s a growing sense of hope that a rising tide can lift all boats. All eyes are on the government’s next steps. We need an industrial strategy that is fit for purpose to ensure that the confidence firms currently have in future economic prospects is not misplaced.”
According to Make UK, the manufacturing sector is forecast to grow 0.5% in 2024 / Picture: Getty/iStock
The Make UK/BDO survey backs the improved picture looking forward although current conditions are weaker. While the balance on output decreased from +9% in Q2 to -2%, it is forecast to jump to +33% in the next quarter. Total orders are following a similar pattern, decreasing from +14% in Q2 to +7% and then also jumping to +33% in the next three months.
Export orders (+11%) exceeded UK orders (-4%) but, the pattern since the pandemic when UK orders have consistently exceeded export orders is forecast to resume in the next quarter at +27% and +26% respectively. Recruitment intentions turned negative for the first time in four quarters decreasing from +26% to -1% although intentions are forecast to jump in the next three months to +22% as companies take on staff to meet the expected increase in demand and better economic outlook.
Business confidence has risen to equal the highest level recorded since the survey started measuring the indicator in 2014. The only previous occasion it reached the current level was during the immediate post-covid rebound. Investment intentions remain positive, although slightly reduced from +15% to +11%. Make UK is forecasting that manufacturing will grow by 0.5% in 2024. This is a downgrade from 1.2% forecast in the last quarter but is due to ONS revisions on which the forecasts are based. GDP is forecast to grow 1.1% in 2024 and 1.8% in 2025.
You can download the full report below:
