Business confidence among Britain’s manufacturers has slumped at the sharpest rate since the Covid-19 pandemic mainly due to rocketing costs according to a major survey of 303 manufacturing companies carried out between 28 October and 27 November and published today by
Make UK and business advisory firm
BDO.
The
Make UK/BDO Manufacturing Outlook Q4 survey shows that while output and orders remain positive, with recruitment and investment intentions stable, the mood among companies has darkened markedly since the last survey when almost six in 10 companies (58%) saw a brighter economic outlook under the new Government. Furthermore, the sharp fall in business confidence among manufacturers contrasts with the Q3 survey when, bar the immediate post-pandemic recovery, it reached its highest level in a decade.
According to the latest survey, 70% of manufacturers have seen their costs increase by up to a fifth in the last year, while almost one in 10 (8%) had seen their costs increase by up to a half. In particular, the survey shows almost nine in 10 companies (86%) will see their business costs increase specifically as a result of the new employment reforms, with almost half of companies (44%) saying the increase will be ‘significant’. With the Budget set to add substantial extra business costs, in particular the changes to National Insurance contributions, Make UK has cut its growth forecasts with manufacturing contracting by -0.2% this year and growing by just 0.7% in 2025.
In response, Make UK is urging the Government to look at measures which might help alleviate the impact of rising costs, in particular reforms to business rates and current incentives to decarbonise.
Fhaheen Khan, senior economist at Make UK, said: “Having faced a cost creep for most of the year, manufacturers are now facing a cost crisis which has brought a sharp dip in their confidence. While overall conditions had begun to gradually improve during the year, the Budget has brought this to a shuddering halt, with the substantial increase in National Insurance contributions potentially the straw that might break the camel’s back for some. There is now an urgent need for Government to look at other measures which might mitigate the impact of the rocketing costs that businesses are now facing.”
Richard Austin, Head of Manufacturing at BDO, added: “While manufacturers have welcomed the Government’s Industrial Strategy green paper, optimism across the sector is declining, driven by increased input costs, the implications of the latest budget on employment costs and lacklustre domestic demand. An overlay of a turbulent geo-political landscape and talk of potential tariffs adds to future uncertainty in the short to medium term. Increasing investment in improving productivity is vital now more than ever to maintain stability and offer opportunities for growth in the sector.”
According to the survey, the balance on output rose to +20% from -2% in the last quarter, with total orders following a similar pattern, up to +16% from +7% in Q3. Export orders (+10%) exceeded UK orders (0%) but, the pattern since the pandemic when UK orders have consistently exceeded export orders is forecast to resume in the next quarter at +8% and +7% respectively. Meanwhile, having gone negative for the first time in four quarters in Q3, recruitment intentions turned positive at +8%, with investment intentions remaining stable at +10%.
Make UK is forecasting that manufacturing will contract by -0.2% in 2024, down from a forecast of +0.5% in the last quarter, before growing by 0.7% in 2025. GDP is forecast to grow by 0.7% in 2024 and 1.4% in 2025.