Manufacturing bounces back as clouds lighten – Make UK/BDO survey

Key findings:

• Output and orders indicates rebounding activity
• UK orders leads growth with both domestic and export orders improved
• Price growth accelerates but margins remain in contraction
• Demand for employees remains strong and investment intentions pick up even before Budget measures
• Business confidence improves but caution remains that worst may not be over
• Industry forecast to contract by -3.3% in 2023, 0.8% growth in 2024

Britain’s manufacturers are 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 according to a survey published today 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.

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.”

According to the survey, the balance on output improved to +21% from +5% and is expected to gather strength in the second quarter to +32%, a significant improvement. Total orders also rose substantially from +6% to +28%, although the next quarter is slightly less positive at +23%.

In line with this improved picture, UK orders increased to +20% from +2%, while export orders also saw a rise from -6% to +12%, reflecting better conditions in overseas markets.

The scramble to attract and retain talent also shows no signs of abating, with recruitment intentions increasing from +3% to +19%, and expectations of improving substantially to +31% in the next quarter. Investment intentions also rose substantially from -5% to +14% potentially reflecting manufacturers’ intention to take advantage of the final quarter of the super-deduction scheme before it ends this month. 

The Make UK/BDO survey showed that inflationary pressures are still very evident for manufacturers with increased costs still being passed on. UK and export prices were both at balances of +52% picking up slightly from last quarter.

In terms of overall output this year Make UK and BDO are forecasting a contraction of -3.3% (a slight improvement from -4.4% forecast at the end of last year) and growth of just 0.8% in 2024.

The survey of 338 companies was conducted between 25^th January 2023 and 22^nd  February 2023.

Ends

About Make UK

Make UK, The Manufacturers’ Organisation, is the representative voice of UK manufacturing, with offices in London, Brussels, every English region and Wales.

Collectively we represent 20,000 companies of all sizes, from start-ups to multinationals, across engineering, manufacturing, technology and the wider industrial sector. Everything we do – from providing essential business support and training to championing manufacturing industry in the UK and the EU – is designed to help British manufacturers compete, innovate and grow.

From HR and employment law, health and safety to environmental and productivity improvement, our advice, expertise and influence enables businesses to remain safe, compliant and future-focused.

About BDO LLP

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

The organisations we work with are Britain’s economic engine –entrepreneurially-spirited, high-growth businesses that fuel the economy. 

We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed. 

BDO LLP operates in 17 offices across the UK, employing 7,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

The BDO global network provides business advisory services in 164 countries and territories, with 111,300 people working out of 1,803 offices worldwide. It has revenues of US$12.8bn.