Manufacturers’ confidence slumps as post-Budget costs increase

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Business confidence among manufacturers has dipped at the sharpest rate since the pandemic due to rocketing costs, according to a major survey published by Make UK and business advisory firm BDO.

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The Make UK/BDO Manufacturing Outlook Q4 survey shows that while output and orders remain positive, with recruitment and investment intentions stable, the mood among companies has dipped significantly since the last survey, when 58 per cent of respondents saw a brighter economic outlook under a new Government.

Furthermore, the sharp fall in business confidence among manufacturers contrasts with the Q3 survey when, bar the immediate post covid recovery, it reached its highest level in a decade.

Now, almost three quarters (70 per cent) of manufacturers have seen their costs increase by up to a fifth in the last year, while almost one in ten (8 per cent) had seen their costs increase by up to a half.

In particular, the survey shows almost nine in ten companies (86 per cent) will see their business costs increase specifically as a result of the new employment reforms, with almost half of companies (44 per cent) saying the increase will be ‘significant’.

With the Budget set to add substantial extra business costs, in particular the changes to National Insurance Contributions, Make UK has cut its growth forecasts with manufacturing contracting by -0.2 per cent this year and growing by just 0.7 per cent in 2025.

With this, Make UK is calling on the Government to consider measures which might help alleviate the impact of rising costs, in particular reforms to business rates and current incentives to decarbonise.

In a statement, Fhaheen Khan, Senior Economist at Make UK, said: “Having faced a cost creep for most of the year, manufacturers are now facing a cost crisis which has brought a sharp dip in their confidence. 

“While overall conditions had begun to gradually improve during the year, the Budget has brought this to a shuddering halt, with the substantial increase in National Insurance Contributions potentially the straw that might break the camel’s back for some.”

Make UK is forecasting that manufacturing will contract by -0.2 per cent in 2024, down from a forecast of +0.5 per cent in the last quarter, before growing by 0.7 per cent in 2025. GDP is forecast to grow by 0.7 per cent in 2024 and 1.4 per cent in 2025.

“While manufacturers have welcomed the Government’s Industrial Strategy green paper, optimism across the sector is declining, driven by increased input costs, the implications of the latest budget on employment costs and lacklustre domestic demand,” added Richard Austin, Head of Manufacturing at BDO.

“An overlay of a turbulent geo-political landscape and talk of potential tariffs adds to future uncertainty in the short to medium term. Increasing investment in improving productivity is vital now more than ever to maintain stability and offer opportunities for growth in the sector.”

The report, based on the survey of 303 companies, can be downloaded and read in full here.