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Manufacturing industry prepares for significant downturn

| Alistair Main | 12 October 2023

Britain’s manufacturers are preparing for a crisis amid a very significant slowdown in activity and even a potential recession in the near future, according to findings from Make UK’s Q3 Manufacturing Outlook survey.

While the survey paints a generally positive picture of the first half of the year in quarters one and two of 2023, the second half of the year shows a sharp reverse in trends. The 336 companies surveyed reported that orders are slowing down both in the UK and overseas and recruitment plans are beginning to cease as a result of the reduced workload.

Almost 0% growth expected in 2024

As a result of the survey, Make UK has sizeably cut its manufacturing growth forecast for the rest of 2023, with output set to fall before the end of the year. The forecast for next year also looks bleak, within the margins of almost no growth whatsoever.

Approximately 72% of companies believe that policy incentives elsewhere, such as the US Inflation Reduction Act, are making it harder to justify any UK investments. Furthermore, 74% inferred that the UK’s lack of consistency with policies is becoming detrimental to build a consistent, reliable environment for firms.

The survey highlighted that more than half of companies withheld their investments during the last two years as a result of the UK having an uncertain climate, even when these firms had the investment capital available to spend. 55% of businesses said they would have invested more within the last five years if the UK had a formal industrial strategy in place.

Decline in manufacturing output

Make UK and BDO is forecasting a contraction of -0.5% in terms of overall output for 2023, which is slightly worse than the -0.3% forecast in the second quarter. They then further downgraded the forecast for 2024, to growth of just 0.5% instead of 0.8% which was predicted in Q2.

As a result of such a significant downturn within the manufacturing sector, Make UK is calling on the Chancellor to use resources to target measures on productivity, skills, digitalisation and energy efficiency in the Autumn Statement, in a bid to rescue the industry from a hefty downfall.

In the Midlands and East Midlands, it’s true that we are starting to see a mix of results and outlooks from our manufacturing businesses. There are still some strong order books out there, but there are definite signs of a slowdown and weakening demand, even if just a reduction in average order value and more projects taking longer to happen.

“Definite signs of a slowdown"

The Bank of England interest rate rise has clearly had an effect, and while it may be what the bank was looking for, time will tell at what cost and what other impacts we will see.

All that said, there are some strong balance sheets out there with cash to invest, however, the government needs to create a stable environment for this to happen. They need to be leading in modernising, such as our energy systems, which will then stimulate investment.

Our advice to clients is to ensure that they are on top of figures, know your costs, and fully understand the profit generation of jobs you take. Those who have the resources to invest themselves to increase efficiencies may find that now is the right time to do this.

Are you worried about your manufacturing business? Get in touch with our team of advisers today for information and guidance.


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