UK manufacturing production: Challenges and trends for 2021

• How has COVID-19 and Brexit affected the manufacturing industry
• What challenges have manufacturers faced over the past year
• What trends are expected to dominate manufacturing in 2021?
• United Kingdom manufacturing production sector forecast for a strong comeback as activity across the UK economy picks up

2020 was a year like no other for the British manufacturing industry, which has been left reeling from the impact of the Coronavirus pandemic.

Before COVID-19 hit, UK manufacturing production worked to regain the momentum it had reached following the 2008-09 financial crash, but coronavirus lockdown restrictions soon thwarted progress.

While the industry is expected to see rapid growth as the UK economy picks up and COVID-19 lockdown restrictions continue to ease, the pandemic’s effect on local and corporate businesses will likely alter the future of the UK manufacturing sector.

That said, Britain’s accelerating vaccine programme appears to be bringing an end to COVID-19 disruption as UK Prime Minister Boris Johnson’s cautious unlocking of the UK economy has been successful thus far.

According to the latest data from the Office for National Statistics (ONS), UK manufacturing production came in at 4.8% year-on-year in March, against consensus expectations of 3.7%.

The data also revealed a 2.1% jump month-on-month, while total industrial output for March came in at 1.8% versus estimates of 1%, with growth driven by a third successive month of increases in new orders.

However, the sustainability of meteoric growth levels will be challenged by supply chain disruption in the coming months, so businesses will need to manage their time wisely and put safety measures to minimise the impact.

Following the initial shock to the manufacturing industry back in March 2020 – when the pandemic first rattled the economy – it has become increasingly crucial for businesses to be more agile and flexible moving forward.

Beyond the pandemic, UK manufacturers also must navigate the challenges of Brexit.

Although Britain and the EU successfully reached a trade agreement in December 2020, providing some welcome reassurance over the movement of goods between the UK and the bloc, there has still been significant disruption due to new post-Brexit rules and regulations.

That’s not to say that there is not a significant amount of positivity surrounding the future of the UK manufacturing industry. Still, firms must take this opportunity to innovate and implement digital technologies to avoid being left behind.

The impact of the COVID-19 pandemic on the manufacturing sector

The challenges proposed by the pandemic has demonstrated the short-, medium-, and long-term impact significant events could have on manufacturing production.

While the outlook for the improving manufacturing industry has become increasingly optimistic, COVID-19 has exposed the weak points in its outdated systems and process, which affected how quickly businesses responded to the crisis.

Research conducted by the Confederation of British Industry (CBI) in the last three months of 2020 found that 84% of British firms expect turnover to grow in the next 12 months. Still, almost all of those surveyed said they were working from low starting points.

According to the latest MAKE UK survey,  35% of UK manufacturers said that COVID lockdown restrictions were the most significant threat to growth over the next 12 months. The survey also revealed that 37% of managers believe it would take more than a year to return to normal trading conditions.

The accelerating shift to digitalisation has also ramped up pressure on British firms to retrain and reskill workers to support new demands and re-shore activity to the country.

In MAKE UK’s latest manufacturing report, 50% of manufacturers admitted that they had made further redundancies, and 20% of participants said they were considering laying off staff over the next six months.

Although these statistics could have changed given that Chancellor Rishi Sunak announced a furlough extension during his March Budget and the UK’s economic outlook has improved, British manufacturers are still facing the largest shortage in skilled workers since 1989.

Separate data out of the UK has shown that nearly 50% of UK employees don’t possess the right qualifications for their current jobs. Employers have often described the skills shortage as the biggest challenge to their business.

The manufacturing industry is likely to face even more challenges this year with Brexit, as the impact of the UK’s departure from the EU is yet to be fully seen.

The impact of Brexit on the manufacturing industry

After months of negotiations, London and Brussels finally agreed on a Brexit trade deal last year, which provided some much-needed certainty to businesses across varying sectors.

However, the change in access rights to the EU market and new trade rules have delivered significant disruption to British firms, many of which have struggled with the additional border requirements, customs inspections, documentation and paperwork.

Although businesses are beginning to adapt and better manage the changes, the decrease in the value of pound Sterling (GBP) following the EU referendum has made exports more competitive and drove up the costs of some imports, which in turn affects output prices.

Manufacturers should ensure they have complete visibility over supply chains, currency exposures, and recruitment to reduce costs. Deloitte also advises implementing digital technologies where possible for greater flexibility across global supply chains.

The UK government will also need to provide the manufacturing sector with a fighting chance at success with strategies that will foster confidence, drive investment, create jobs and boost economic growth.

So, while the impact of Brexit is likely to have a prolonged effect on the industry, as long as manufacturers are ready to deal with those challenges and take advantage of opportunities to improve operations, they should hopefully be in a position to profit.

2021 manufacturing industry outlook: What will be the most significant challenges?

Besides the risk of debt, one of the most substantial challenges the manufacturing production industry faces is rebuilding market confidence and boosting sales.

Those exporting goods to Europe will be keen to strengthen relationships with EU clients and keep costs as low as possible on both sides of the Channel to prevent this relationship from fracturing post-Brexit.

Small firms will need to work towards being more agile and flexible to negate the twin impact of COVID-19 and Brexit and improve production levels to trade profitably with their European neighbours.

The CBI found that the implementation of digital technologies is key to boosting productivity, of which the UK lags behind its European counterparts.

According to research conducted by the not-for-profit membership organisation during Q4 2020, 90% of British businesses agreed that the manufacturing sector needed to replace traditional production methods.

Meanwhile, 70% said that they expect Brexit to impact their business moderately and significantly. Furthermore, 47% said they have had difficulty employing skilled workers due to lack of availability, and 55% said that the government has failed to offer adequate support.

Concurrently, a post-election poll conducted by Deloitte revealed that 24% of manufacturers are struggling to cope with new demands brought about by COVID-19. 20% of the industry’s CEOs also said that managing productivity is their biggest challenge for 2021.

Although the data from Deloitte and the CBI may be slightly outdated, maximising productivity has been a significant challenge for the manufacturing sector for most of the past decade, despite recent advances in technology, e.g. artificial intelligence (AI).

COVID-19 has merely brought the issue further into the spotlight, as restrictions imposed by governments globally such as social distancing rules, which have reduced the number of staff allowed to work, has lowered productivity and increased the financial burden.

So, what can be done to speed up recovery in the sector and spur growth? Digitalisation is one of the few trends expected to dominate manufacturing in 2021 and beyond.

What trends are expected to dominate the manufacturing industry in 2021?

Digital investments can help manufacturers manage production in response to unknown disruptions. It allows them to better forecast rises and falls in demand and then increase or slow down production.

We expect to see some major trends this year, including “Industry 4.0”, “Green Growth”, and an increase in automation.

What is “Industry 4.0”?

Industry 4.0, or the fourth industrial revolution, is the ongoing automation of traditional industry processes – injection moulding, machining, forming, and joining – using digital technology to deliver a more responsive and advanced manufacturing landscape.

According to the MPI Group’s global research summary study of manufacturing leaders, when asked how important the fourth industrial revolution is for the industry, almost all manufacturing executives believed the shift is crucial.

The study revealed that 45% of respondents said Industry 4.0 is “vital”, and 38% stated that it was “very important”. When participants were questioned whether they thought it would significantly impact the industry and business over the next five years, more than 50% agreed.

The growing focus on new technologies and smart products suggests that the industry will undergo a significant digital transformation in the next few years, with firms that are already integrating these processes into supply chains expected to reap the benefits.

Separate data shows that more than 61% of UK manufacturers have changed business practices due to Brexit and COVID-19, especially manufacturers in the West Midlands, with the region expected to lead on the UK’s green economic recovery.

A move to sustainable “Green Growth”

According to John Pearce, the CEO of Made in Britain, a green economy could create more jobs and lead to a more resilient and sustainable manufacturing production industry.

Given that the industry represents more than 50% of the world’s total energy consumption and produces 20% of its global emission, it’s no wonder that governments are encouraging “green growth”.

Many nations are encouraging the transition to a circular economy, which is essential to green growth as the model promotes recycling and reusing products to cut resource use and create a more sustainable economy.

As all manufacturers depend on raw materials, there has been a more significant push towards green growth as these commodities become increasingly scarce.

In a recent US Green Building Council survey, 50% of survey participants believed that nearly two-thirds of construction projects in the United States would be made of sustainable materials by 2021.

The survey also revealed that the global green building materials market would hit USD 425BN by 2027 due to rapidly growing demand.

However, it will still take a massive cultural shift for the world to move into an environment of sustainability.

Automation to boost productivity and efficiency

Artificial intelligence (AI) has been in public discussion for most of the last decade. Today, it will be hard to find an industry that isn’t utilising AI technology to boost productivity.

Despite initial concerns about automation causing “robots to replace humans”, this has not been the case, and AI has improved the quality and efficiency of manufacturing processes.

AI has aided the industry by making it safer to work and streamlining methods, which, in effect, increase profitability. According to recent projections, global artificial intelligence in the manufacturing market will hit USD 4.7M in the next five years.

Manufacturers have accelerated the adoption of automation technology during the coronavirus pandemic due to a reduced workforce, which is likely to persist due to the growing skills shortage.

However, a post-election survey carried out by Deloitte revealed that 28% of manufacturing bosses said that upskilling workers to match evolving work environments (automation, digital, and remote) is one of today’s most significant challenges.

It seems that for manufacturers, their success and survival will primarily depend on where they have suffered the most significant shock from the pandemic and how they will rebuild their lost revenue and evaluate their supply chains to raise productivity.

That said, no matter the size of the damage to the business, it has become increasingly apparent that the manufacturing industry needs to become more agile and continue investing in digital technologies to manage future disruptions better and boost growth.