Manufacturing Industry to plunge into recession in 2023 – Make UK/BDO survey

Warning of sleepwalking into acceptance of little or no growth

Key findings:

• Manufacturing down more than 4% on 2021, with further contraction to come
• Investment goes negative for first time in nearly two years
• GDP forecast to contract in 2023 by 0.9%
• Output in manufacturing flat in last quarter
• Orders turn negative suggesting future falls in output
• Recruitment holds up as scramble for talent ongoing

Britain’s manufacturers are set to plunge into recession next year as the deteriorating economic conditions at home and abroad exert a vice-like grip on the sector, with increasing costs across the board, tighter fiscal and monetary policy and weakening consumer demand forming a perfect storm.

The forecast was made in the Make UK/BDO Q4 Manufacturing Outlook survey released today which shows manufacturing contracting by -3.2% in 2023. This comes on the back of a forecast -4.4% contraction this year, although Make UK stressed the number for this year is relative to a very strong 2021 which reflected the pandemic bounceback.

However, given Make UK has consistently been revising down its forecasts for manufacturing growth in 2022 throughout this year from 3% in March to 1.7% in July, 0.6% in September and now, a contraction of -4.4% (1), it highlights the extent to which conditions for the sector have weakened significantly, especially in the final quarter of the year.

As well as downgrading its forecasts for manufacturing Make UK is forecasting GDP growth of +4.4% this year but, a contraction next year of -0.9%.

In response, Make UK warned of the danger of policymakers sleepwalking into an acceptance of little or no growth as a normal economic scenario. It re-iterated its call for Government to develop a wide-ranging industrial strategy with a long-term vision at national and regional level.

Furthermore, while the Chancellor took some welcome measures in the Autumn Statement to help ease the short-term pressures on business, Make UK said more measures will be needed if economic prospects continue to weaken. These should include:

• Alleviating labour shortages with temporary easements to the migration system and ensure manufacturers have the funds to train and retrain employees by expanding the tax exemption for work related training into a wider Training Investment Allowance.
• Tackling the increased cost to business by extending business rates reliefs for retail hospitality and leisure to manufacturing
• Spurring on much needed immediate investment by allowing first year allowances
• Re-thinking recent decisions on the R&D tax relief for small businesses to ensure manufacturers are not deterred from investing in critical innovations

Stephen Phipson, Chief Executive at Make UK, said:

“There is simply no sugar-coating the outlook for next year and possibly beyond. Even for a sector as resilient as manufacturing these are remarkably challenging times which are testing even the best and most successful of companies to the limit.

“As a result, while the Chancellor has already brought in some welcome measures to help ease the cost pressure on companies in the short term, it may not be too long before we see him having to bring more firepower to ease cost pressures.

“However, the bigger issue is that the UK risks sleepwalking into an acceptance that little or no growth is the norm. Government needs to work with industry as a matter of urgency to deliver a long-term industrial strategy that has growth at national and regional levels at its heart.”

Richard Austin, BDO’s National Head of Manufacturing, added:

“Manufacturing input prices are growing rapidly, so it is little wonder UK manufacturers are having to pass the costs onto their customers in order to remain viable.

“Without the right government support and reassurance, manufacturing businesses will be inclined to retain cash to keep the doors open, rather than invest cash in future growth and competitiveness of the sector. There is little clarity on how the new government plan to build the right longer term environment in which the sector can effectively plan.

“The true impact of inflationary pressures and dwindling investment may not be immediately apparent in the sector, but they will be reflected in longer-term growth. For instance, with hiring being a challenge and energy prices rising, manufacturers may not have the funds to invest in automation and green initiatives, thus impacting the future competitiveness of the UK manufacturing sector.”

According to the survey, the balance on output remained stable at +5% although in line with the weakening economic conditions is expected to turn negative in the next quarter (-6%). Total orders fell significantly from +15% to +6% but are also expected to turn negative next quarter (-2%).

In line with this poorer picture, the domestic market turned very much weaker, falling to -+2% from +12%, while export orders fell from +3% to -6%. The outlook is for further deterioration in the next quarter with balances of -6% and -11% respectively.

However, despite this weakening picture, the scramble to attract and retain talent meant that recruitment intentions held up at +3% and are expected to grow next quarter. However, investment intentions turned negative for the first time in seven quarters falling to a balance of -5% from +7%.  

The Make UK/BDO survey showed the increased costs manufacturers are seeing are still being passed on, although the data suggests this is becoming slightly harder to do. UK prices fell very slightly to +49% from +53% with export prices staying flat at +51%.

Looking forward, both UK and export prices are expected to continue falling to +48% and +47% respectively. While these figures remain very high by historical standards, they are a significant reduction on the figures seen over the last year.

The survey of 332 companies was conducted between 26 October and 16 November.

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. We directly represent over 5,000 businesses who are members of Make UK. 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.

Our clients are Britain’s economic engine – ambitious, entrepreneurially-spirited and high growth businesses that fuel the economy. 

We share our clients’ ambitions and their entrepreneurial mind-set. We have the right combination of global reach, integrity and expertise to help them succeed. 

BDO LLP operates in 18 offices across the UK, employing 6,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO International network.

The BDO global network provides business advisory services in 167 countries, with 91,000 people working out of 1,658 offices worldwide. It has revenues of $10.3bn.