Manufacturing faces anaemic growth for next two years – Make UK/BDO survey

Sectoral and regional imbalances now becoming permanent 

Key findings:

• Output falls, orders consistent but subdued
• UK orders show slight improvement but export orders prominent for now
• Recruitment and investment intentions fairly strong
• Confidence remains robust 
• Large sectoral and regional differences becoming permanent
• Manufacturing growth forecasts anaemic for 2024 and 2025

Britain’s manufacturers are facing the prospect of two years of anaemic growth, with latest forecasts suggesting the sector will remain flat this year and, grow by just half the rate of the economy overall in 2025. However, despite this, confidence levels among companies remain robust with investment and recruitment intentions holding up.

The findings come in the Q1 Manufacturing Outlook survey published today by Make UK and business advisory firm BDO. The survey also shows that, while the overall picture is weak, it masks stark sectoral and regional imbalances. Electronics, aerospace and food and drink are powering ahead, whilst the South East and Wales are performing substantially better than other regions and devolved nations.  

There is a direct link between sectoral and regional performance, as electronics and food and drink are the largest and second largest sectors respectively in the South East, while Wales has a very large aerospace supply chain.

According to Make UK, these imbalances for both sectors and regions are now becoming permanent, with the strong performance of manufacturing in the South East yet further evidence that levelling up is failing to address regional economic imbalances.

While accepting there are some external factors such as weak demand in Europe, Make UK used the anaemic prospects for the sector to re-iterate its call for a long-term industrial strategy and urged all political parties to focus on boosting investment and economic growth as an urgent national priority. 

Fhaheen Khan, Senior Economist at Make UK, said:

“While manufacturers’ own confidence remains robust, the overall prospects for the sector are weak for the foreseeable future. While there are clearly external factors at play, the UK economy has a fundamental growth problem which a business as usual policy process simply will not address.

“The next Government of whatever colour must address this fundamental problem as a matter of national urgency, beginning with a long-term industrial strategy which will really shift the dial on the UK’s economic performance.” 

Richard Austin, Head of Manufacturing at BDO added:

“Manufacturers have continued to show their ability to overcome wave after wave of challenges, but they cannot continue to do this indefinitely without some more long-term support from the Government. We have reached a tipping point where the ramifications of regional disparities may permanently affect the manufacturing sector, which could hamper future growth.

“Now more than ever there is a strong case for policies and measures that will help UK manufacturers invest and expand. Despite the challenges, demand for labour and investment intentions remains strong and the next few months will be critical to the sector.”

According to the survey, the balance on output fell significantly to +5% from +20% in Q4 last year but is expected to rebound to +31% in the next three months. Total orders remained at +7% but, are also forecast to improve to +24% in the next three months. 

In the last quarter, both UK and export orders were flat at +1% but, looking forward, they are both forecast to improve to +21% and +19% respectively. This will resume the pattern since the pandemic when UK orders have consistently exceeded export orders, the only occasion when this was reversed being the final quarter of last year. 

According to Make UK, while this is to some degree a reflection of weak demand in overseas markets, it is also due to the impact of leaving the EU given it fits with other data on UK trade.

The scramble to attract and retain talent also shows no signs of abating, with recruitment intentions remaining strong at +12% and increasing next quarter to +14%. Apart from the start of the pandemic, employment balances have been at elevated levels since the EU referendum, indicating that skills shortages and vacancies in manufacturing are now structural. 

Investment intentions increased from +10% to +15% continuing the positive trend in every quarter bar one since the beginning of 2021. This would seem to indicate a positive response to the announcement on full expensing by the Chancellor in the Autumn Statement.

Make UK’s latest economic forecasts are for just 0.1% growth in manufacturing this year and 0.8% in 2025. GDP is forecast to grow 0.6% this year and 1.6% in 2025. 

The survey of 326 companies was conducted between 14 January and 28 February.

Ends

About Make UK

Make UK, The Manufacturers’ Organisation, is the representative voice of UK manufacturing, with offices in London, Brussels, every English region and Wales. 

Collectively we represent 20,000 companies of all sizes, from start-ups to multinationals, across engineering, manufacturing, technology and the wider industrial sector. Everything we do – from providing essential business support and training to championing manufacturing industry in the UK and the EU – is designed to help British manufacturers compete, innovate and grow.

From HR and employment law, health and safety to environmental and productivity improvement, our advice, expertise and influence enables businesses to remain safe, compliant and future-focused. 

About BDO LLP

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.  

The organisations we work with are Britain’s economic engine –entrepreneurially-spirited, high-growth businesses that fuel the economy.   

We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed.   

BDO LLP 

BDO LLP operates in 18 offices across the UK, employing 7,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network. 

BDO’s global network 

The BDO global network provides business advisory services in 166 countries and territories, with more than 115,000 people working out of 1,776 offices worldwide. It has revenues of US$14bn.