Manufacturers in the East Midlands are looking at a tough twelve months ahead with the sector likely to contract in the face of a deteriorating economic outlook at home and abroad according to a survey published today by Make UK and business advisory firm BDO.
The forecast was made in the Make UK/BDO Q4 Manufacturing Outlook survey which shows manufacturing contracting by -3.2% in 2023. This comes on the back of a forecast -4.4% contraction this year, although Make UK stressed the number for this year is relative to a very strong 2021 which reflected the pandemic bounceback.
However, given Make UK has consistently been revising down its forecasts for manufacturing growth in 2022 throughout this year from 3% in March to 1.7% in July, 0.6% in September and now, a contraction of -4.4% (1), it highlights the extent to which conditions for the sector have weakened significantly, especially in the final quarter of the year.
In the last quarter, output in the East Midlands held up in line with the national picture at a balance of +12%, although total orders in the last quarter dropped substantially to a balance of -12%, which is likely to feed through into depressed output in the future. Despite this recruitment intentions remain strong in the East Midlands given labour shortages and the scramble to attract and retain talent.
As well as downgrading its forecasts for manufacturing Make UK is forecasting GDP growth of +4.4% this year but, a contraction next year of -0.9%.
In response, Make UK warned of the danger of policymakers sleepwalking into an acceptance of little or no growth as a normal economic scenario. It re-iterated its call for Government to develop a wide-ranging industrial strategy with a long-term vision at national and regional level.
Furthermore, while the Chancellor took some welcome measures in the Autumn Statement to help ease the short-term pressures on business, Make UK said more measures will be needed if economic prospects continue to weaken. These should include:
- Alleviating labour shortages with temporary easements to the migration system and ensure manufacturers have the funds to train and retrain employees by expanding the tax exemption for work related training into a wider Training Investment Allowance.
- Tackling the increased cost to business by extending business rates reliefs for retail hospitality and leisure to manufacturing
- Spurring on much needed immediate investment by allowing first year allowances
- Re-thinking recent decisions on the R&D tax relief for small businesses to ensure manufacturers are not deterred from investing in critical innovations
Charlotte Horobin, region director for Make UK in the Midlands, said: “There is simply no sugar-coating the outlook for next year and possibly beyond. Even for a sector as resilient as manufacturing these are remarkably challenging times which are testing even the best and most successful of companies to the limit.
“As a result, while the Chancellor has already brought in some welcome measures to help ease the cost pressure on companies in the short term, it may not be too long before we see him having to bring more firepower to ease cost pressures.
“However, the bigger issue is that the UK risks sleepwalking into an acceptance that little or no growth is the norm. Government needs to work with industry as a matter of urgency to deliver a long-term industrial strategy that has growth at national and regional levels at its heart.”
Jon Gilpin, head of Manufacturing at BDO in the Midlands, said: “The new government recently put forward welcome measures to assist the sector in the short term. However, the government needs to provide a plan on how they intend to support the sector in the long term. Businesses need to be able to plan their future with confidence that the government will support them.
“Without adequate government assistance, businesses will be inclined to hold onto their funds to keep the doors of their business open, rather than investing in technologies and capabilities which will make them competitive in the longer-term. For instance, manufacturers may delay investing in automation technology and green initiatives, thus impacting the future competitiveness of the sector.”
