Bleak outlook for region’s factories as survey shows they are already being hit by UK’s low growth

December 12, 2022

Manufacturers in the South West face a tough year ahead with the sector expected to contract in the face of a deteriorating economic outlook at home and abroad, according to a new survey.

The region’s manufacturing businesses are ending 2022 on a low, having suffered falling orders and a cutback in recruitment. 

But results of the latest quarterly survey from manufacturing group Make UK and business advisory firm BDO reveals worse to come in 2023.

It shows the sector across the UK contracting by 3.2% over the next 12 months, on the back of a forecast 4.4% contraction this year – although Make UK stressed this year’s figure is relative to a very strong 2021 when manufacturers bounced back from the impact of the pandemic.

Reflecting the significantly weakening market conditions, Make UK started this year by forecasting annual manufacturing growth of 3%, before revising it down to 1.7% in the summer, then 0.6% in September.

Its year-end warning of a 4.4% contraction shows how conditions have deteriorated within the past three months, it said.

While Make UK is forecasting GDP growth of 4.4% this year, it expects the UK economy to contract by 0.9% next year. 

Output from South West factories held up in the final quarter in line with the UK figure of plus 13%, according to the survey.

However, it is forecast to turn negative in the first quarter of 2023, also in line with the national outlook.

Total orders declined to a balance of minus 7% in the region and are forecast to remain weaker in the next quarter, also in line with the national picture.

Recruitment intentions among South West manufacturers also went into reverse over the past four months – in contrast to the rest of the country where the figures have stayed positive due to labour shortages and the demand for talent.

Make UK South West director Jim Davison, pictured above, 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.”

He said a bigger issue was that the UK risked sleepwalking into an acceptance that little or no growth was 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,” he added.

BDO head of manufacturing in the South West, Matthew Sewell, pictured right, acknowledged that the government had put forward some welcome measures to help UK manufacturers in the short term – but he warned that South West manufacturing businesses needed clarity on robust long-term measures.

“The sector needs to understand the long-term assistance they can expect so they can plan for their future,” he added.

“Without adequate long-term government support, we will have a manufacturing sector which is reluctant to invest in new technologies, such as automation and energy efficient equipment, as they will hold onto their money to ensure they can keep the doors open in the short term.

“This scenario will have a negative impact on the future competitiveness and viability of the sector.”

On the back of the survey results, Make UK has re-iterated its call for government to develop a wide-ranging industrial strategy with a long-term vision at national and regional level.

Measures it is urging the government to consider 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.

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