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  • Writer's pictureLinda Andrews

Manufacturing Recovery Continues

Britain’s manufacturers are seeing a continued rebound in activity in the second quarter of the year, easing fears of a significant recession for the sector according to a survey published today by Make UK and accountancy and business advisory firm BDO.

The findings in the Make UK/BDO Q2 Manufacturing Outlook survey show a continued positive picture with the improvement being driven by strong demand in the Other Transport and Electronic sectors in particular, with the balance of output in Other Transport (largely aerospace) extremely strong at +82%.

According to Make UK and BDO this reflects continued recovery in the aerospace sector with the increase in passenger miles, together with a spate of large orders for new aircraft over the last year. Furthermore, strong balances for electronics are becoming embedded as companies invest in digitalisation and extra capacity to counter labour shortages. These investments are now translating into consistently strong balances for the South East where electronics is the second largest industrial sector in the region.

However, despite conditions remaining positive, Make UK is still forecasting a slight contraction for manufacturing in 2023, although the picture remains far better than the significant contraction Make UK was forecasting at the end of last year and in Q1.

James Brougham, Senior Economist at Make UK, said:

“Manufacturers are seeing a gradually improving picture but the word ‘gradually’ is doing a lot of heavy lifting. However, companies are at least seeing a relative period of stability after the political and economic turmoil of the last few years when they have spent most of their time firefighting. Substantial challenges still remain, however, and so long as there is an absence of an overarching industrial strategy growth prospects will remain anaemic at best.”

Richard Austin, BDO’s National Head of Manufacturing, says the burden on manufacturers still lays heavy, adding:

“Despite the first half of the year seeing some pressures easing, there are longer-term systemic challenges in the UK market, with built-in inefficiencies that need to be addressed urgently in order for UK manufacturing to effectively plan and invest."

“Supply chain pressures, for example, are an endemic issue for the businesses we talk to, particularly medium-sized firms. They are facing continued disruption and increased costs, at home and abroad, with many choosing to onshore operations but facing major barriers in doing so. These issues cannot be overlooked by policymakers or we run the risk of tepid-at-best growth for UK manufacturing while neighbouring countries outpace us.”

According to the survey, the balance on output increased slightly from Q1 (+24% from +21%) and is expected to remain at a similar level in the next quarter at +22%. Total orders fell slightly to +21% from +28% in Q1 although companies are more optimistic for increased orders in Q3 with a balance of +27%. In line with this stable picture, UK orders fell slightly to +15% from +20% in Q1 although as with the picture for total orders are expected to pick up in Q3 to +21%. Export orders also saw a rise from +12% to +15%, although companies see a slightly weaker picture in the next quarter at +12%.

The scramble to attract and retain talent also shows no signs of abating, with recruitment intentions remaining stable at +18% (+19% in Q1) improving substantially to +30% in the next quarter. These employment balances are very elevated by historic standards and, apart from the initial quarters of the pandemic, have been at elevated levels since the EU referendum.

Investment intentions, whilst still positive at +10% eased back from the 14% in the first quarter, perhaps reflecting the crossover between the end of the super-deduction scheme and the onset of the benefit from full expensing.

The survey also shows that, in the face of continued skills shortages and strong labour demand, wage growth shows little or no sign of easing with a fifth of pay settlements reached in April at 5% and a further 15% of settlements at 6% or above.

In terms of overall output this year Make UK and BDO are forecasting a contraction of 0.3% although this is a significant improvement from the contraction of -3.3% made in Q1 and the -4.4% forecast at the end of last year. However, Make UK is maintaining its previous forecast for growth of just 0.8% in 2024. UK GDP growth is at 0.4% for 2023 and 1.3% for 2024.

The survey of 327 companies was conducted between 19 April and 24 May.


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