Manufacturers in the South East 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 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%, 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 South East declined significantly to a balance of -18% and is forecast to stay negative at the start of 2023. Total orders also declined and are forecast to remain weaker in the next quarter in line with the national picture. Recruitment intentions also declined which is in contrast to the national picture where the figures have stayed positive due to labour shortages and the demand for 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
Jim Davison, Region Director for Make UK in the South East 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.”
Matthew Sewell, Head of Manufacturing at BDO in Southampton, said:
“Without long term government support we will see manufacturers who are reluctant to invest in new and emerging technologies which could help sure up their businesses, such as automation and energy efficient plant equipment, as they will want to hold onto their funds to keep their business going in the short term. This scenario will negatively impact on the future competitiveness and viability of the sector.
“The new UK government has offered some welcome measures to assist UK manufacturers in the immediate future. However, the sector still needs robust long term measures. Manufacturers need clarity on the long term assistance so they can expect so they can effectively plan for their future.”
