Strong output is surging growth in UK manufacturing industry

Growth prospects in the UK manufacturing sector are becoming significantly more positive for the rest of the year.

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

After a 10% decline in output in 2020, the sector is now set to recover a significant amount of that loss in 2021 and outpace the growth of the overall UK economy. This growth is based on a surge in both domestic and overseas orders which is translating into strong hiring intentions.

Investment intentions have also turned positive for the first since the first quarter of 2020, suggesting that the introduction of the temporary super-deduction tax in the latest budget is having some impact together with improved growth prospects.

However, Make UK stressed that the figures are reflecting a recovery from a very low base with balances last year reaching record lows worse than those seen during the financial crisis. Between 2019 and 2020 the manufacturing sector lost approximately £18 billion in value, which will take more than a short-term boost of pent-up demand to return the sector to its pre-pandemic size.

Make UK forecasts do suggest, assuming vaccine effectiveness is strong, that manufacturing output levels will return to pre-pandemic levels by the end of 2022. That is earlier than previous forecasts had suggested.

Fhaheen Khan, senior economist at Make UK, said: “Manufacturing growth is now firmly accelerating as restrictions have been eased and economies around the globe have started to open up. Looking forward there seems no reason to believe that this will not continue, assuming the shackles come off firmly in the second half of the year.

“However, given we are coming from a very low base, worse than during the financial crisis, we have to bear in mind that there was bound to be a rubber band impact this year. Furthermore, for some sectors such as Aerospace the limited prospects for international travel in the near future means they may struggle to return to normal trading for some time.”

Richard Austin, head of manufacturing at BDO, added: “Manufacturers have fought hard to recover from the brutal impact of the pandemic and have made great strides since the start of the year.

“With investment intentions having turned positive for the first time since the first quarter of 2020, it appears the government’s introduction of the temporary super-deduction tax has provided the incentive manufacturers needed to bring forward their investment plans.

“We know targeted tax policies can have a huge impact but, with the melting pot of challenges ahead around supply chains, availability of basic commodities and rising inflation, we need the government to look at longer-term strategies to allow the sector to build back better and confidently invest over the next 10-15 years.”

The survey of 276 companies was conducted from 5-26 May.

Make UK www.makeuk.org

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