Manufacturers' confidence remains robust despite weak economy

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Confidence levels among manufacturers remain robust despite the weak outlook for the UK economy overall according to the Q1 Manufacturing Outlook survey published today by Make UK and business advisory firm BDO.

The survey shows that, while the general economic picture is flat, there are stark sectoral and regional imbalances, with electronics, aerospace and food and drink powering ahead, whilst the South East and Wales are performing substantially better than other regions and devolved nations.

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 providing 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.