Duncan & Toplis

Manufacturing output is strong, but are things as they seem?

| Julie Chapman | 29 October 2024

The latest ONS data on the strength of the UK’s manufacturing output shows that the total value of manufactured goods rose 3.9% between 2022 and 2023. More recently, monthly output rose 1.1% in August.

Although this puts the overall value of manufactured goods at £456 billion, the value has remained flat throughout much of this year, with dips in some subsectors offsetting the modest growth in others.

What’s more, in a survey of manufacturers by Make UK and BDO, firms expressed an optimistic outlook but found that output has turned negative for the first time in four years.

Meanwhile, another report found a solid increase in production volumes at the end of the third quarter - although there were signs of a ‘wait and see’ approach toward decision-making ahead of the Budget, with manufacturers having a more nervous outlook.

So, are things looking up or should businesses be cautious?

Doom and gloom giving way to optimism

To an extent, a slowdown in manufacturing growth can be viewed as a return to normal after the surge in demand that boosted manufacturing output following the pandemic. This was unfortunately hampered by increases in energy costs, as well as global supply chain issues, and now that we have a new government, businesses are exercising caution.

Tomorrow, the government will be setting out its new Budget and although there are concerns over potential tax rises, other developments should give rise to greater confidence.

Certainly, the new government began with messages of ‘doom and gloom’ which may have hampered confidence and lowered expectations, but more recently, the government has attracted a warmer response from business groups.

This month, it published a green paper on its new Industrial Strategy - something manufacturers have long been calling for - and this has been well received by organisations such as the Federation of Small Businesses (FSB). The government has also set out how it is planning to tackle late payments, establish new international trade deals, simplify public sector procurement and cut red tape - with a particular focus on regulations that inhibit innovation and growth.

Creating the conditions for manufacturing growth

Businesses thrive in the right environment. Having a proper, long-term industrial strategy helps with this, as does the potential removal of restrictions on R&D and investment.

One of the more important factors is the overall stability of the economy: The cost of energy rose again in October, but this is still significantly down on the previous year and it is a long way from where it peaked in early 2023. Meanwhile, inflation has fallen to its lowest level in three years and the UK’s GDP is estimated to be growing steadily, so these are all positive signs.

After the UK employment rate dropped to near pandemic levels for the first two quarters of this year, I’d encourage the government to also focus on schemes that can help employers take on new workers and access people with the skills they need. Apprenticeships can be very valuable for manufacturers but their numbers have declined in recent years, so it would be good to see this reverse.

These environmental factors lie beyond the control of manufacturers themselves but there are more practical, immediate steps that businesses can take to ensure they are on the best footing.

How manufacturers can prepare for the future

Hesitance may well be the best approach before the Budget when we’ll know much more about what is to come, but there are lots of other things manufacturers should be doing now, regardless.

R&D tax relief can significantly cut the amount of Corporation Tax that manufacturers pay by as much as 14.5%, rewarding them for investing in scientific or technological improvements which will benefit their business in future, and there are also R&D grants available for a range of businesses. The government also has several grant schemes available which businesses shouldn’t miss the opportunity to accept.

Once more is known about the government’s spending plans after the Budget, I would also advise manufacturers to review their forecasting to identify their likely expenditure and income, and, again, make sure you seize any new support that becomes available.

While manufacturers may be cautiously optimistic at best about their prospects, the current environment could certainly be much worse. Once the Budget is known, I would encourage businesses to take stock and reevaluate their circumstances. It could be the case that the conditions for growth are the best they have been in years.

If you would like professional advice or guidance, please contact our team today.

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