Manufacturers end year on more upbeat note

However, the survey also shows recruitment intentions weakened significantly in response to the speculation in the run up to the Budget as companies feared further tax rises and increased labour costs, while business confidence indicators dropped for the second quarter in a row. Despite the more upbeat end to the year, Make UK and BDO cautioned against the survey kick starting a period of stronger trading, as growth forecasts for the sector remain weak with output forecast to grow by just 0.5% this year and contract by -0.5% in 2026.

Make UK also published new analysis showing the potential boost to public/private sector investment in the UK should it match OECD levels by 2035. According to the analysis, UK average investment intensity (investment as share of gdp) in the last decade (2013-2024) was approximately 17%, whilst the OECD average was around 22% in the same period.

If Government were to set a long term target of the UK matching OECD levels by 2035, to achieve this progressively would mean increasing UK investment by just 0.5% every year from now on. According to Make UK if the 22% target was achieved, it would bring approximately £670bn more public/private investment in the UK over the next decade.

The analysis also shows given the private sector would be likely to account for approximately 60% of the total and, manufacturers will contribute about 11% of the 60%, it would bring £44bn more investment into manufacturing by 2035.

Commenting, James Brougham, senior economist at Make UK, said: “After a difficult twelve months when manufacturers have faced multiple challenges across all fronts, it’s a relief to see the year ending on a more positive note. However, the prospects for any form of significant growth remain remote and, with rising employment costs and any help on energy still well over the horizon, companies will have little inclination to fill up the punch bowl to start the party.

“It’s now essential that Government brings forward the proposed energy support scheme and, at the same time, extends it right across the sector so the broadest possible range of companies are covered. With firms set to take a hit on increased employment costs employers also want to see reassurances from Government that the upcoming Employment Rights Bill will not add further financial burdens on businesses, otherwise the jobs market will remain weak.”

Richard Austin, head of Manufacturing at BDO, said: “This year has been a volatile one for UK manufacturers. Whilst the last six months have shown tentative signs of growth in output and orders, the sector is lacking the confidence and assurance they need to put their hands in their pockets and invest.

“Last month’s Budget gave manufacturers some relief in terms of investment, green transition and some positive skills measures but it fell short in addressing some of the biggest concerns the sector is facing. Businesses need decisive action if growth is to be realised.”

According to the Manufacturing Outlook survey, the balance on output eased to +13% from +25% in the last quarter, although the forward looking balance for the next quarter is set to improve to +19%. Total orders followed a similar pattern easing to +3% from +16% in Q3, but forecast to improve to +19%. The balance between export and UK orders was more balanced in the final quarter, both at +20% although the two are forecast to diverge significantly in the next quarter with international trade weakening substantially (Export orders +3% UK +27%).

The survey also showed that the United States dropped from second to third behind Asia & Oceania in terms of markets offering best growth prospects. Having dropped out of the top three markets altogether in Q2 on the back of the April announcement on tariffs this indicates an emerging pattern of UK manufacturers looking at other markets overseas apart from the US.

Recruitment intentions weakened significantly to +3% from +15% in Q3. Investment intentions eased slightly to +19% from +25% though this is still high by historic levels and substantially above the balances for the first half of the year which were in low single figures.

The survey of 263 companies was carried out between 27 October and 20 November.

www.makeuk.org