Manufacturing battens down the hatches as downturn looms – Make UK/BDO survey

Key findings:

• Output and total orders turn flat, bucking expectations
• UK and export orders fall in tandem
• Recruitment plans weaken significantly for first time since EU referendum
• Three quarters of companies bemoan lack of policy consistency
• Policy incentives in US and EU making UK investment harder to justify
• Manufacturing output growth for 2023 forecast -0.5%, and just 0.5% for 2024

Britain’s manufacturers are battening down the hatches amid a very sharp slowdown in activity and potential recession, according to the latest data from Make UK and business advisory firm BDO.

The findings in the Make UK/BDO Q3 Manufacturing Outlook survey show that the positive picture of the first half of the year has now gone sharply into reverse, with recruitment plans ceasing and orders slowing at home and abroad. As a result, Make UK has cut its forecast for growth for 2023 with output set to fall this year, while the forecast for next year is within the margins of no growth at all.

The survey comes at a time when three quarters of companies (72.7%) believe that policy incentives elsewhere (eg US IRA and similar EU measures) are making UK investments harder to justify while a similar number (74.1%) say a lack of policy consistency in the UK is damaging efforts to build a consistent business environment. More than half of companies have withheld investment in the last two years as a result of the uncertain business environment, despite having investment capital accessible. 

In response to the downturn, Make UK is calling on the Chancellor to use his limited resource to target measures on skills, digitalisation and productivity and energy efficiency. Specific priorities should include:

1. Carry out a root-and-branch review of the apprenticeship levy. Annual starts remain significantly lower than prior to the introduction of the policy and appear to be declining again. 
2. Extend the 12-month 100% business rate reliefs on green plant machinery and equipment and on building improvements introduced in April 2023. Green investments should have a minimum of a three-year relief to reflect business’ payback period for their investments.
3. Commit to Made Smarter across the UK. Government should commit to the full rollout of Made Smarter which has proven to support the adoption of new technology in manufacturing businesses, and explore extending the remit of Made Smarter to include industrial decarbonisation.
4. Expand the R&D tax relief to include capital equipment relating to industrial decarbonisation.

Government should build on the most recent qualifying extensions of the R&D tax relief to include capital equipment for green processing and industrial decarbonisation.

Verity Davidge, Policy Director at Make UK, said:

“Manufacturers are seeing a very sharp slowdown in activity as the potent cocktail of rising interest rates, cost of living and slowing overseas markets bites hard. As a result, they are now battening down the hatches in the expectation that the next year is going to be anaemic at best and, potentially, much harder. 

“While it’s clear the Chancellor doesn’t have a financial war chest to try and boost growth he should use his Autumn Statement to bring forward carefully targeted measures which could make a difference to companies’ efforts to boost skills and productivity. He should use whatever is available to get the best bang for his buck.”

According to the survey, the balance on output fell from +21% in Q2 to just +3%. Total orders also turned negative at -1% with both UK and export orders negative at -3% having been at +15% in Q2. According to Make UK, the scale of the fall in the indicators highlights the extent of the slowdown. The survey also shows that for the first time since the EU referendum recruitment plans have eased substantially, falling to a negative balance of -1%. This compares to +19% in Q1 and +14% in Q2.

Richard Austin, BDO’s National Head of Manufacturing, added: 

“There’s an argument here that says the Bank of England’s plan to raise interest rates and stamp out inflation is working. But it is the scale of the fall in the indicators this quarter that comes as a surprise and highlights the extent of the slowdown on UK manufacturing. 

“Manufacturers are entering the final quarter on an increasingly unsteady footing. In the absence of an overarching industrial strategy from government, businesses will be forced to cut back, protect margins and focus on building operational efficiencies over the next few months.”

In terms of overall output this year, Make UK and BDO are forecasting a contraction of -0.5%, slightly worse than the -0.3% forecast in Q2. However, Make UK downgraded its forecast for 2024 to growth of just 0.5%, down from 0.8% in Q2.

The survey of 336 companies was conducted between 9 and 23 August.

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.