Manufacturing Outlook 2023 Quarter 3 Results from Make UK

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.

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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.

However, the overall picture marks a strongly emerging sectoral divergence with the other transport (largely aerospace), food and drink, and chemicals sectors continuing to perform very strongly relative to other sectors. The aerospace sector in particular has benefitted from a large number of orders for new aircraft over the last year, as well as a strong rebound in long haul international travel.

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 at the upcoming Autumn Statement.

"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"

Verity Davidge Director of Policy at MAKE UK

Headlines

Make UK’s Q3 2023 Manufacturing Outlook report, in partnership with BDO, finds that the strong performance reported by manufacturers in the first half of the year failed to continue into the third quarter. As it stands, it appears that the buoyant activity of the last 6 months may have been but a temporary blip in the seriesas rising interest rates begin to take a toll on economic activity.

The latest balance for output reported at +3%, down from +24% in Q2 2023 highlighting the weakest performance for production since Q4 2020. The significant reduction in the share of businesses raising their output levels was highly unexpected and indicates that market activity may be slowing. As official statistics show businesses are reporting declines in demand from overseas as many economies attempt to tackle inflation through demand adjustments via higher interest rates as the primary vehicle. Unfortunately, this has impacted other measures of performance too suggesting that the manufacturing sector is heading for a contractionary period.

The decline in output performance is also mirrored by the performance of orders which have sunk into negative territory.The balance for total orders has declined to -1%, the lowest level since Q4 2020 and echoes the challenges we faced during the pandemic.

However, the performance of this quarter is still far better than those days. Looking at the domestic market, UK orders has also declined into negative territory reporting at -3% for this quarter and the export orders balance reported at -3% as well.

Nevertheless, the unexpected slowdown appears to have had very little impact on business optimism and expectations for the future.In the latest survey manufacturers predict that the final quarter of this year will post strong results.

The share of manufacturers raising prices on their goods is showing material signs of falling indicating that the rate of inflation taking place upstream will start to fall too. This is a good sign that slowing demand will put the brakes on high inflation over time. While this may come at the cost of a recessionary period it may be a price worth paying to stop the industry from overheating via a higher price higher demand cycle. However, manufacturers’ margins remain in negative territory, albeit they continue the path to recovery.

The consequence of an artificially slowed economy is an unnecessary reduction in the need for workers. Manufacturers have future ambitions to hire, but appetite for workers has weakened significantly suggesting unemployment could start to rise. The latest survey reported a balance of -1% for employment, the lowest since Q1 2021. In contrast, investment activity has remained robust with a balance of +17% of manufacturers planning to increase their spending on plant & machinery over the next twelve months, indicating that whilst today’s performance is poor businesses are optimistic about demand returning in the future.

Business confidence remains positive and, contrary to other metrics this quarter, has improved since Q3 2023. This indicates that even if the market is slowing down manufacturers are not facing a significantly difficult time ahead. However, business expectations for UK GDP have declined this quarter reflecting the aggressive nature of interest rate hikes signaling the intentions of the Bank of England to slow down the UK economy.

Download the "Make UK Manufacturing Outlook 2023"

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