Q) What are the MTA’s thoughts on the UK’s machine tools market at the current time? Are figures above expectations or below and what is the export and import split?
We have a positive view of the UK machine tool market with growth of around +16% expected this year, following a +10% improvement in 2021, although this will not quite balance the fall that we saw during 2020 during the pandemic. The view given by the published data for the industry is complicated by some odd numbers back in 2019 where we saw exports rise while production fell but our own internal survey data suggests that the recovery is well under way. As we note later, the shortage of electronic components may be the limiting factor at the moment.
Exports of machine tools have more than recovered the pandemic induced decline and, at £537.6m in 2021 reached the highest level (in current prices) since 1998. Given the nature of the major machine tool producers in the UK, there is a high export ratio within production and, in parallel, a high import ratio in the market figures.
Machine tool imports had been very strong in 2018 and 2019 and while there has been some recovery from the pandemic-low in 2020, the increase of +24% in 2021 took the total to £518.3m which is still some way sort of the peak recorded in 2019 (£591.1m). This leaves the UK with a rare trade surplus for machine tools, although we don’t expect this to continue as the market recovers - indeed , we have already seen a very sharp rise in the 1st quarter of 2022 but we think that there are some data collection issues here as well as a market driven increase.
Q) Has the UK machine tools market recovered from the pandemic or is still being impacted?
As noted above, we almost back to pre-pandemic levels for the UK machine tool market but there are still some issues hanging over the market activity. The main one of these is the shortage of electronic components which is affecting machine tool (and especially controller) manufacturers globally.
However, the main impact from the pandemic is in the business of our customers which then has a 2nd round impact on our members business. This is more important for the tooling suppliers as their business levels are more directly driven by output of their customers, but there is an implication for investment as well (this is the main driver of machine tool demand).
Q) Is the supply chain still impacting the flow of machine tools to and from the UK?
Yes. Machine tool manufacturers globally (this is not a UK only issue) are having problems getting electronic components (mainly for control systems) in just the same way that the automotive industry is being affected, except the volumes are smaller. This is causing problems both for the UK manufacturers but also the suppliers of imported machines who are having problems getting machines from their principals.
In our Business Survey for the 1st quarter of 2022, the factor most restricting members activity (note that this is across the whole of the manufacturing technology spectrum, not just machine tool companies) was suppliers delivery times – this is even more significant because the top answer is nearly always “a lack of orders” (which was in 2nd place but given by less than half of the respondents – again unusual). There were also a small but still significant number of respondents who cited a shortage of raw materials, components and skilled labour; the latter is just as much a part of the “supply chain” for our members as physical products and parts.
Q) In terms of exports does the MTA believe Brexit has impacted the UK machine tool market?
It is hard to pin down the impact of Brexit on UK exports, in part because of the structure of the machine tool manufacturers in the UK which means that it is unlikely to change significantly. During the 2010’s, the EU accounted for around 45% of UK machine tool exports although the ratio increased to just over half in 2018/19 before falling back to its previous levels in 2020 and 2021.
There are a couple of scenarios that would fit here; the first is that the share of machine tool exports going to the EU had increased but then fell back in 2020/21 as a result of Brexit but the alternative is that the increased share in 2018/19 was the exception and the fall in the following two years is simply a return to the previous levels.
Our Business Survey, mentioned above in the context of supply chain problems, still shows a few companies reporting that export/import documentation is a problem – again, this is a mixture of manufacturing technology companies but mainly now affects importers and especially those dealing with deliveries to Ireland and Northern Ireland.
There is, perhaps a more significant impact of Brexit among machine tool purchasers, but this mainly impact the tooling side of the sector so we will cover this in a later question.
Q) Are the imports of machine tools into the UK at the expected rate? Where are they mainly being imported from?
Given the high import ratio noted earlier, imports tend to run broadly in parallel with the market and this is broadly the trend we have seen over the past few years.
Looking back over five years (2017 to 2021), the European Union was accounting for a little over half of machine tool imports, but the ratio fell to 44% in 2021. This was mainly because arrivals from the EU were the same as in 2020 with the growth in total imports coming entirely from the rest of the world.
However, the exact reasons for this are unclear, in part because of changes in the way the data is collected with the UK having left the European Union and the derogation for importers to delay declarations for 6 months. The 1st quarter of 2022 has seen a very sharp leap in machine tool imports, especially from the EU but it is too early to judge the driver of this.
The other major sources of machine tool imports for the UK are the USA, Switzerland and the Asian manufacturing nations of China, Taiwan, South Korea and Japan (in that order for 2021).
Q) What is the MTA’s outlook for the UK machine tool market for the rest of the year and into 2023?
We believe that the machine tool market will be strong during the rest of this year and into 2023. A key factor here is the super-deduction allowance which gives a 130% first year capital allowance; this is currently available until 31 March 2023.
We asked visitors to the recent MACH exhibition is this had changed their investment plans for the coming 12 months (effectively up to the expiry date for the allowance) and 58% said that it had increased their likely investment spending.
In parallel with this, the Annual Investment Allowance (AIA) has been extended to £1m (this is also due to expire next year) and 39% of the respondents also said that this had a positive impact on their capital expenditure plans.
Both of these schemes have been running for a year already and because of the supply chain issues that we highlighted above, there is a modest backlog of machine tool orders which will also support growth in the UK machine tool market in 2022 which was highlighted in the first question.
However, with the super-deduction scheme due to end next Spring and the AIA scheduled to return to £200,000, there is a risk of a fall in investment across the economy in 2023, just at a time when the economy is trying to recover from the impact of high inflation this year.
This is why we are asking government to extend the super-deduction scheme beyond its current deadline; ideally this would be on the same basis as at present, plus the inclusion of leased assets (which are not currently included in this scheme) but it also presents an opportunity for the government to focus support on priority areas such as energy efficiency or new technology (Industry 4.0 capability of both the machine and the company has been used in Italy).
We also believe that support is needed for skills, especially around the adoption of digital technologies. The Made Smarter Adoption programmes are available in some parts of the country but this needs to be extended nationally. This would tie-up, for example, with support for investment in technology.
