UK manufacturing poised for post-Budget rebound, says RSM UK

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The new Labour Government's Industrial Strategy green paper and Budget announcement are both welcome news for the manufacturing sector, RSM UK claims.

RMS UK claims that the Budget will be a catalyst for a 'manufacturing rebound' as 2024 comes to a close
RMS UK claims that the Budget will be a catalyst for a 'manufacturing rebound' as 2024 comes to a close - AdobeStock

Published last week (November 1, 2024), S&P Global’s latest UK Manufacturing Purchasing Managers’ Index (PMI) stated that the manufacturing PMI dipped in October, falling below 50 for the first time in six months.

S&P Global’s PMI posted 49.9 in October, down from 51.5 in September and the earlier flash estimate of 50.3.

A lack of market optimism, slower economic growth, stretched supply chains and concerns about the impacts of possible announcements in the Labour Government’s first Budget – which was yet to be announced at the time of the survey – led to reduced intakes of new work and a near-stalling of output growth, S&P Global said.

“However, recent government announcements will hopefully help fuel optimism moving forwards. The Industrial Strategy green paper, and [last] week’s Budget, are both welcome news for the sector,” Mike Thornton, national head of manufacturing at RSM UK, said in a statement.

“Investment takes centre stage, and this is crucial to drive growth and to address languishing UK productivity. When combined with headline PMI at or just over 50 for the last six months, the sector looks ready to move forward and the Budget will hopefully be a catalyst for a manufacturing rebound as 2024 comes to a close.”

In RSM UK’s recent Investment Monitor survey, conducted with Make UK, manufacturers said that they wanted to see a reduction in headline corporate tax and simplification expansion of the full expensing of capital allowances from the Budget.

“Whilst the former of these was probably a unicorn in the current fiscal environment, it was pleasing to see government commitment to invest both through capital allowances and the research and development (R&D) tax regime,” said Thornton.

“The Industrial Strategy green paper is, perhaps unsurprisingly at this stage, short on details relating to the advanced manufacturing sector plan. It was therefore pleasing to see the budget allocate £1 billion to aerospace and £2 billion to automotive.”

The company suggests that the drop in the UK manufacturing PMI is related to ‘pre-Budget nerves,’ adding that it hopes the sector will continue an ‘upwards trend’ in the last two months of 2024.

“Most of the PMI numbers make for pretty dismal reading with the output, new orders and future output indices all falling. This chimes with other business surveys and the drop in consumer confidence seen over the last few months and is at least partly driven by businesses pausing some decisions until after the Budget,” said Tom Pugh, economist at RSM UK.

“There were some positive signs as well, though. The employment index ticked back up to 51.4 indicating that manufacturers are confident enough in the future to keep hiring and there was a massive slump in the input prices balance from 57.7 to 49.5. This was probably because of a stabilisation in energy prices, despite the geopolitical risks coming from the Middle East.”