The turn of the decade brought with it refreshed optimism for the UK manufacturing industry however, this waned quickly as the COVID-19 pandemic spread across the globe. The pandemic brought with it a lot of challenges, from overnight factory closures, disrupted supply chains to prioritising the health and safety of employees. Alongside this, the EU–UK Trade and Cooperation Agreement (TCA) impacted the flow of goods, with many manufacturers experiencing delays at borders.
The sector continues to prove its resilience as it navigates the challenges it faces, and our quarterly Manufacturing Outlook reports clearly demonstrates the impact of these. Over recent years we have seen a series of the worst and best figures ever reported by our Manufacturing Outlook survey.
Supply chain issues and inflation
- Recent manufacturing output growth has been restricted by the continued input price inflation the industry has faced both in the labour and material markets. The industry has struggled to meet demand, particularly in instances where orders and quotes were given months ago and the prices of manufacturing inputs have continued rising in the intervening period, leaving manufacturers in the challenging position of either renegotiating existing contracts or absorbing the reduction in their margins.
- Following the record-breaking UK orders balance seen in the third quarter of 2021, UK orders growth has continued to slow down. However, in isolation the balance has been very strong by historical standards and better than export orders. It is likely that challenges around trade coupled with unreliable and expensive global logistics have made domestic trade more attractive.
- Prices and margins - the biggest challenge manufacturing in the UK is facing right now revolves around cost. From rising input prices to logistics, energy, wages, and higher tax bills looming in the months to come businesses are feeling the pinch more than they have ever before.
The effects of Brexit and COVID-19 on UK manufacturing
- Since the end of the transition period, export orders have failed to keep pace with the domestic market as international customers shied away from UK markets, and domestic suppliers began to seek new relationships at home.
- Employment in the industry has been receiving a lot more focus over the last few quarters as the labour shortage in manufacturing continues to weigh on businesses’ ability to raise output levels to their post-pandemic recovery potential. There are many factors that are exacerbating the challenges manufacturers are facing when it comes to accessing labour, with the leading issues being: increased difficulty sourcing labour from the EU following the UK’s exit from the Bloc, an expensive labour market and changing workforce attitudes towards flexible working.