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Manufacturing Industry Hits Record Highs as Growth Surges

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Britain’s manufacturers hit a record high level of output and orders in the last quarter as growth surged in response to the UK and overseas economies continuing to open up, according to a major survey published today by Make UK and business advisory firm BDO.

Having seen a brutal 10% decline in output in 2020, the sector is now set to recover almost all that loss in 2021, with growth based on a surge in both domestic and overseas orders which is now translating into strong hiring intentions.

Domestic orders remain stronger than export orders, suggesting that there remains some impact on trade with the EU.

Investment intentions have also increased significantly, with anecdotal evidence suggesting that the introduction of the ‘super-deduction tax’ in the Budget is having some impact, together with improved growth prospects.

However, Make UK strongly criticised the recent increase in National Insurance Contributions and warned that the plans threaten to choke off this boost, as well as hitting the prospects for recruitment, especially for young people.

Make UK stressed that the positive figures overall are reflecting a recovery from a very low base of record falls in output in 2020, adding that supply chain disruption and significant labour shortages are now widely evident which could impact on growth prospects for some companies through the rest of the year.

The survey also shows a significant increase in both domestic and export margins compared to Q2. While positive for manufacturers’ profits, this highlights that companies are starting to pass on increases in the cost of raw materials and shipping costs, with inflationary pressures now in the pipeline for end customers.

Despite the limiting factors, Make UK forecasts do suggest, assuming vaccine effectiveness is strong, that manufacturing output levels will return to pre-pandemic levels by the end of 2022, earlier than previous forecasts had suggested.

Stephen Phipson, Chief Executive at Make UK, said:

“Growth prospects continue to accelerate for manufacturers as economies at home and abroad continue to open up. However, supply chain shortages and the rapidly escalating increase in shipping costs are threatening to put roadblocks on the road to faster growth despite the current optimism.

“Furthermore, after surviving an 18 month pandemic, the recent increase in National Insurance was the last thing that industry needed, especially when firms need capital to invest and hire. Government should be putting in place measures to protect jobs and incentivise recruitment, especially for younger people.”

Richard Austin, Head of Manufacturing at BDO, added:

“The improved levels of investment we have seen for the second quarter in a row are hugely positive and are indicative of an industry that is confident of a future worth investing in. It feels like manufacturers are finally able to build some momentum, however the new levy has the potential to disrupt plans.

“Manufacturers have proved their resilience over and over again, but big challenges remain.

“Increasing costs, rising inflation and the ongoing battle to attract and retain skilled workers despite positive recruitment intentions will continue to stress-test UK makers for the remainder of the year.”

According to the survey the balance on output improved to +42% from +36% in Q2 (+9% in Q1). This is the highest balance in the survey’s 30 year history. Looking forward, output is expected to continue to improve with a forecast balance of +53% in Q4, which would be another record high.

Total orders also improved to +49% from +34%, with growth set to continue in Q4 with a forecasted balance of +46%. This picture was buoyed by significant growth in both UK and export orders with domestic orders increasing from +27% to +48%, while export orders increased from +22% to +37%.

This surge in growth has also translated into strong recruitment intentions which exceeded expectations, improving from +20% to +23%. This growth in hiring is expected to accelerate in the final period of the year with the forward-looking indicator on recruitment rising to +46%.

Investment intentions also accelerated strongly from +17% to +37%. While there may be some impact from the super-deduction tax Make UK stressed that, while this is the second quarter in a row to see an improvement, the four quarters prior to Q2 this year saw substantially negative investment balances.

Make UK has forecast growth for manufacturing of +7.1%, down slightly from +7.8%, with GDP growth of +7.3%

The survey of 327 companies was conducted between 28 July and 17 August.