UK manufacturing industry bounces back in first quarter

The UK manufacturing industry is seeing a rebound in activity in the first quarter of the year as the domestic and global markets have improved, easing fears of a significant recession for industry this year.

This is according to a survey published by Make UK and accountancy and business advisory firm BDO.

The findings in the Make UK/BDO Q1 Manufacturing Outlook survey show a marked pick up on the picture in the final quarter of 2022. The figures echo the gradual improvements in other data such as the UK and European PMIs which are now only just in negative territory, as well as a strong pick up in demand from China.

Most notably, the improvement is being largely driven by strong demand in the electronics and mechanical equipment sectors, with the balance of orders in the electronics sector in particular (+64%) extremely strong.

According to Make UK and BDO this could be due to several factors, including companies investing in digitalisation and extra capacity to counter labour shortages or, to take advantage of the final period of the super deduction scheme which ends this month. Demand for electronics goods is especially strong from overseas (+67%), in particular the EU.

The survey also shows a significant improvement in the investment balance overall even before the positive announcement on full expensing in last week’s Budget Statement. However, given the average investment cycle in manufacturing is around seven years Make UK believes that for the measure to make a real and lasting difference to business investment levels the measure needs to become permanent.

However, despite the improvement this quarter, Make UK and BDO caution against the worst of conditions being over and are forecasting a contraction for manufacturing in 2023 as the substantial challenges the sector is facing show few signs of abating.

Fhaheen Khan, senior economist at Make UK, said: “Manufacturers have seen a rebound at the start of the year as conditions have improved in their major markets and, business confidence has improved. However, one swallow doesn’t make a summer and it is far too early to say the worst has passed given the significant challenges the economy faces. However, the Budget should help boost investment in the short to medium term although ideally, full expensing should be made permanent to better reflect the investment cycle for manufacturers.”

Richard Austin, BDO’s national head of manufacturing, added: “Recent government announcements do very little to address the immediate threats to UK manufacturers resulting from the heavy burden of energy costs. UK manufacturers need ongoing certainty on a range of fronts, including long-term energy costs, commitments and investment to develop UK gigafactories and support to attract a sustainable workforce. Manufacturers and investors need consistency and long-term support to build and shape their future plans around.

“The results of our research with Make UK illuminates that, despite glimmers of good news such as strong demand for electronics and mechanical equipment, inflationary pressures are still very evident for UK manufacturers with increased costs still being passed on. The data shows conflicting upward and downward indicators – potentially an industry at a crossroads. It will be fascinating to see which path will be followed over the coming months.”

The survey of 338 companies was conducted between 15^th February and 8^th March.

Make UK
www.makeuk.org